Sources say RBI reviewing Kotak's succession plan

As per undisclosed sources, India's banking regulator is urging Kotak Mahindra Bank Ltd. to appoint an external candidate as the next Chief Executive Officer to succeed its billionaire founder Uday Kotak. The Reserve Bank of India has reportedly communicated this recommendation to the board members of Kotak Mahindra Bank and Uday Kotak, who is considered Asia's wealthiest financier. Additionally, the regulator is conducting a review to assess whether the banking group's stakes in two wholly-owned insurance units could potentially pose any risks to the bank's stability.

India has implemented stricter rules, capping the maximum tenure of bank CEOs at 15 years, and is conducting a review of the stakes that banks hold in insurance companies to fortify the country's financial system. The Reserve Bank of India (RBI) had previously stated that outgoing heads should undergo a three-year cooling period and refrain from any association with the bank or its affiliated entities to ensure a clean break.

Uday Kotak, the CEO of India's fourth-largest private lender, is approaching the end of his tenure this year. Despite obtaining shareholder approval to continue on the board, selecting one of his lieutenants from within the bank's ranks while he is still on the board could potentially violate the spirit of the regulations, as it might allow Kotak to retain influence over decisions.

In response to queries, a spokesperson for Kotak Mahindra stated that the current holdings of Kotak in its insurance companies comply with existing regulatory requirements and processes and declined to comment on the CEO selection. The RBI, on the other hand, did not respond to requests for comments.

To find a new CEO, Kotak Mahindra engaged consulting firm Egon Zehnder to conduct a global search, and internal candidates Shanti Ekambaram and K.V.S. Manian were considered for the position.

The RBI has the final authority to appoint the heads of the country's banks, although the bank's boards are responsible for shortlisting candidates.

Regarding the bank's holdings in its insurance units, Kotak Mahindra's stakes in Kotak Mahindra Life Insurance Co. and Kotak Mahindra General Insurance Co. are under scrutiny by the central bank as it evaluates banks' stakes in insurance firms. Kotak Mahindra is the only major bank in the country with wholly-owned insurance subsidiaries. Although the bank has been in discussions with advisors, including Morgan Stanley, to reduce its stakes in the insurers, no transactions have been finalized yet.

In the past, Kotak had challenged the RBI in court to retain his stake in the bank above the regulator's threshold, arguing that the central bank did not have the authority to dictate founders' shareholdings.

Uday Kotak's net worth is approximately $14.5 billion, primarily attributed to his 26% stake in the bank. He has been leading the bank since its transformation from a non-banking finance company into a lender in 2003.

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