Kotak Mahindra Bank shares rise up to 17%
The strategy paid off: As lenders have plunged globally, Kotak Mahindra Bank shares are up 17% this year, the most among Indian peers, and Kotak just gained an extension to his chief executive officer term for another three years. A representative at the firm didn’t respond to requests for comment.
“As far as I’m concerned, becoming the world’s richest banker is only a proxy for Uday being one of the world’s smartest bankers," said Anand Mahindra, the chairman of Mahindra Group in Mumbai, whose tie up with Kotak back in 1986 led to the firm’s name. “More importantly, he’s understood that what makes a bank sustainable and durable is not just smart strategies but unassailable governanceKotak’s company stands out in a country where lenders have some of the worst bad-loan ratios in the world. Trouble for the firms started brewing in 2015, when India’s regulator initiated a massive audit that unearthed hidden souring loans. That led to a shadow-banking crisis that constrained the broader economy and further hurt asset-quality scores and profitKotak Mahindra Bank, though, was able to adapt. It reduced lending to small and medium companies and unsecured individuals. Its shares rallied more than 24% in each of the past three yearsThe financier has been Kotak Mahindra Bank’s CEO since its beginning and gained more control of it in 2006 by ending a partnership of more than a decade with Goldman Sachs Group Inc. He rose through the ranks by keeping strong underwriting practices and avoiding lending to riskier sectors, focusing instead on expanding collateral-backed loans for farm equipment, mortgages and vehicles, according to Deepak Jasani, head of retail research at HDFC Securities Ltd.
While the RBI just approved the extension of Kotak’s CEO term -- despite earlier proposing to put a cap on the tenure of top executives at private banks -- investors are starting to wonder what will happen after he hands over the reins.For now, Kotak is still very much at the helm. The firm is exploring a takeover of smaller rival IndusInd Bank Ltd., people familiar with the matter said in October, a move that would cement Kotak Mahindra Bank’s position as one of India’s leading private lenders and boost its assets by more than 80%.
Looking back, Mahindra says his decision in the 1980s to bet on Kotak has been rewarding.