When mortgage lender HDFC Ltd secured a banking licence in 1994 after the government and the RBI decided to open up the Indian banking sector to private players, the man who was appointed to head the new private bank was from CitiBank in the Far East – Aditya Puri. Over the next two decades he built from scratch a bank that is now one of the world’s biggest by market capitalisation. The foundation for that growth was laid by focusing on technology, a new customer experience, packages, a strong management information system, and consistent growth – both in terms of assets and liabilities – for years.
Kotak Mahindra Bank’s new CEO Ashok Vaswani has similar credentials, having been in charge of Barclays UK’s global consumer and payments, besides CEO. He has also been a big advocate of digitisation and technology in banking from early on. But the comparisons end there for Vaswani, who will take over what is now the fourth-largest private bank in India – albeit by a huge distance.
Narrowing the gap with the leaders in terms of asset size as well as franchise is what shareholders will obviously expect from him. Uday Kotak, the bank’s promoter and CEO until September, has said he is proud to bring a ‘global Indian’ home to build his bank business and the ‘India of the future’. Kotak has described Vaswani as a world-class leader and banker with strong focus on customers and technology.
Some analysts, and perhaps the equity market, may not quite have warmed up to Vaswani’s appointment, given the concerns around succession issues at the bank after Kotak stepped down, and its prospects, especially at a time of fierce competition among private lenders. There is also unease, perhaps, at the appointment of a banker with little grounding or experience in the Indian banking industry that’s no doubt riddled with unique challenges. Add to this the fact that the bank had a couple of potential senior executives in-house that were fit to be elevated to CEO but were overlooked in favour of Vaswani.
It could be that the promoter and the board may be betting on Kotak Bank to emerge as a digital bank, considering the rapid growth of digitisation in India. In some ways that makes sense for a bank that has a limited footprint across the country and has mostly grown inorganically compared to its private-sector peers.
Another differentiator between the bank and its competition is that it has only pivoted towards a retail strategy over the past few years. Thus, it also may help that Vaswani comes from a fintech firm after his Barclays stint. He will nevertheless have to come to grips with other private lenders that have also upped their digital game and are investing more in this.
There are other challenges, too, such as boosting the bank’s low current account and savings ratio (CASA), which slid after it rationalised its high savings-account rates a while ago, and boosting its advances portfolio with more of a retail and mid-corporate mix. That again is going to be difficult, with other banks also fighting for this pie and interest rates expected to remain high in the near term at least.
Internally, the test of Vaswani’s leadership will be retaining staff. The bank has reported one of the highest attrition rates in the industry at the junior level. Talent retention hasn’t been easy for many banks, given the growing opportunities in the financial sector. Kotak Bank chairman Prakash Apte has held out the promise of a new, conducive work culture that fosters innovation and collaboration. Vaswani’s leadership will be tested on this and other fronts, including customer service.
Naturally, his operational and leadership style and each major step will be watched closely, with Uday Kotak remaining on the bank’s board (which is not very common). Vaswani will have to convince shareholders and the wider stock market that the promoter’s influence isn’t a dominant one but rather more like that of a mentor, a custodian, or a trustee of stakeholders.
With the bank’s stock underperforming those of its peers, the pressure will be especially intense. The latest quarterly numbers, including the key metric of profitability, seem fine for a bank with assets of close to ₹5 lakh crore. But ultimately, Vaswani’s success will have to reflect in the stock price.
