The Reserve Bank of India has communicated its preference to board members of Kotak Mahindra Bank and Uday Kotak, they said, requesting anonymity as the communication is private. The regulator is also conducting a review to determine if the bank’s holdings in two wholly-owned insurance units pose any risks to the bank’s stability, the sources added.
Uday KotakIndia has implemented stricter rules limiting the tenure of bank CEOs to a maximum of 15 years and has been reviewing banks’ stakes in insurance companies to strengthen the country’s financial system. RBI stated in 2021 that the outgoing CEO should take a three-year cooling period and should not be “appointed or associated with the bank or its group entities in any capacity, either directly or indirectly,” to ensure a clean break for the outgoing CEO from the bank.
Uday Kotak’s tenure as CEO of India’s fourth-largest private bank ends this year. He has obtained shareholder approval to remain on the board afterwards. Selecting one of his subordinates from within the bank’s ranks, while he is still on the board, would go against the spirit of the regulations, potentially allowing Kotak to influence decisions, according to the sources.
A spokesperson for Kotak Mahindra stated that the “current holdings of Kotak in its insurance companies are as per the extant regulatory prescriptions and processes” and declined to comment on the CEO selection. An RBI spokesperson did not respond to requests for comment.
Earlier this year, the bank engaged consulting firm Egon Zehnder to conduct a global search for a new CEO, and its executives Shanti Ekambaram and K.V.S. Manian were internal candidates for the position, as reported by Bloomberg News. While the bank’s boards decide on the shortlist of candidates, the RBI has the final say in appointing heads of the country’s banks.
Kotak Mahindra’s holdings in its units – Kotak Mahindra Life Insurance Co. and Kotak Mahindra General Insurance Co. – are also under review as the central bank evaluates the bank’s stakes in insurance companies, according to the sources. It is the only major bank in the country with fully-owned insurance subsidiaries.
Although Kotak Mahindra has been working with advisors, including Morgan Stanley, to reduce its stakes in the insurance companies for several months, no transactions have been finalized yet, according to the sources. A spokesperson for Morgan Stanley declined to comment.
Previously, Kotak had challenged the RBI in court to retain his stake in the bank above the regulator’s threshold. The bank argued at the time that the central bank did not have the authority to dictate founders’ shareholdings as the RBI sought to separate management and ownership functions at banks to improve corporate governance.
According to the Bloomberg Billionaires Index, Kotak has a net worth of approximately $14.5 billion, with most of it coming from his 26% stake in the bank. He has led the bank since its conversion into a lender in 2003 from a non-banking finance company.