Kotak’s boardroom rejig hints at succession pain

Boardroom blues. Asia’s richest banker is still muddling through a succession plan. Uday Kotak’s $41 billion Kotak Mahindra Bank anointed a Citigroup veteran and outsider Ashok Vaswani to take over from the billionaire as CEO and managing director in October. Four months later, Vaswani is ceding part of his new responsibilities to an insider who was snubbed for the top job. It's a messy and reactive development at India's most richly valued big bank.

Long-serving executives KVS Manian and Shanti Ekambaram, who separately head the corporate and consumer businesses, were seen as candidates to succeed Uday Kotak. Ultimately they were passed over. Manian will now become joint managing director alongside Vaswani, and Ekambaram will become deputy managing director. Their key responsibilities appear unchanged.

The result pushes Kotak Mahindra back to a leadership structure similar to one in place when Uday Kotak was in charge. Manian steps into the shoes of Dipak Gupta who was joint managing director for almost two decades. Yet, such a division of labour is often, ironically, easier to manage when large shareholders are CEOs because everyone knows they call the shots.

Ultimately, Kotak Mahindra’s rejigged setup stands out from its big private sector bank peers. While it is normal to have a deputy managing director, the leaders of Axis Bank, ICICI and HDFC Bank are CEO and managing directors and none of them shares the latter title with anyone else on their respective boards.

The overhaul is in part a way to preserve the hard-earned culture of the bank and ensure Vaswani has some extra handholding while he settles into his position. It may also recogise that he's relatively new to the Indian market, having spent many years working overseas. He can focus on the bank's digital transformation. It's border-line firefighting too: Manian was in the running to lead the $4.7 billion Federal Bank, NDTV Profit and other Indian media reported before the rejig was announced on Monday.

Continuity may be key. Kotak Mahindra has had a higher employee attrition rate than its peers. Fortunately, the bank is otherwise in better shape than most. As high interest rates keep liquidity tight, lenders are looking for low-cost deposits. Kotak’s liquidity coverage and loan-to-deposit ratios stood at 126% and 88% at the end of December, better than HDFC Bank’s 110% on both metrics. That's reflected in Kotak Mahindra's rich valuation at 3.1 times its 12-month forward book value, per LSEG. The management reshuffle feels abrupt but won't take off too much shine.