MUMBAI, April 25 (Reuters Breakingviews) - Uday Kotak is yet to reveal who will succeed him as chief executive of the $46 billion Indian bank that bears his name, but the 64-year-old has won overwhelming shareholder support for a plan that will keep him on the board as a non-executive director when he steps down later this year. The arrangement has some logic given he owns 26%. It will also be messy and is at odds with the regulator’s own aim to improve governance across the industry.
Bosses of the country’s private-sector banks are allowed to stay in their jobs for up to 15 years. When that rule was introduced in 2021, those who had already hit that limit were allowed to serve out their existing terms. By the time he steps down in December, Kotak will have been in charge for 20 years, two years more than JPMorgan’s (JPM.N) Jamie Dimon and six more than DBS Group’s (DBSM.SI) Piyush Gupta.
It is little surprise that more than 99% of investors voted for him to stay, per exchange filings published last week. The bank dodged the bad loan crisis that engulfed rivals over the past decade. Axis Bank (AXBK.NS) and ICICI Bank (ICBK.NS) ran into trouble and replaced their CEOs. Another, Yes Bank (YESB.NS), had its founder kicked out before eventually requiring a rescue by other lenders. It’s partly why Kotak Mahindra (KTKM.NS) commands a premium valuation at 4 times its forward book value, more than twice those peers.
Officials may want him to stay too. Kotak is the man who New Delhi dials when it needs a troubleshooter and he wrote India’s code for corporate governance. Yet the Reserve Bank of India’s own rules explicitly mandate a three-year gap for outgoing bank heads to return to their past employers in any capacity, and the regulator, whom Kotak has sparred with over how to trim his large stake, will have the final say.
Ultimately, the regulator may struggle to look past one big problem. If Kotak sits on the board, his successor - expected to be an insider – will effectively continue to work with his or her long-time boss. A similar arrangement was in place for nearly two decades at ICICI before the asset quality crisis hit the bank in 2015. If things go wrong at Kotak, regulators may end up wondering who to blame.
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CONTEXT NEWS
Kotak Mahindra Bank said on April 21 that over 99% of its shareholders voted in favour of appointing Managing Director & CEO Uday Kotak as a non-executive, non-independent director of the bank after his term ends in December 2023. The lender is yet to announce the name of Kotak’s successor.
