In October 2017, Uday Kotak, chairman of SEBI Committee on Corporate Governance, drew attention to two prevailing corporate management styles in India.
The first style he referred to as the “Raja” (Monarch) model, where promoter interests take precedence o ver the interests of other stakeholders (Praja). The second style he advocated for was the “Custodian” (Trusteeship) model, which he believed corporate India should adopt. In this model, the board of directors acts in the best interests of all stakeholders, including shareholders, employees, and staff.
Despite being associated with the “Raja” model as his family bears the name of the Kotak Mahindra Bank, Uday Kotak seemingly supports the adoption of the “Custodian” model by the board of directors at the bank.
Kotak Mahindra Bank’s (KMB) annual report for the financial year 2023 portrays the bank’s overt commitment to its employees. However, a closer look reveals a different reality.
Although a survey indicates that 79% of employees consider the bank a “Great Place to Work”, the disclosed attrition rates among employees under-30 years and junior employees tell a different story. In FY23, attrition in the junior employee category reached 51%, and among employees under 30, it was a shocking 58.2%.
However, the lack of any commentary on such a critical issue casts doubts over what the bank says about adhering to the “highest standards of corporate governance which includes disclosure, transparency and responsiveness”.
The board, chaired by Prakash Apte, along with the executive leadership of the bank’s chief executive officer (CEO) Uday Kotak, and Dipak Gupta, appears unwilling to acknowledge this issue to the shareholders.
In fact, KMB’s public commentary to non-discerning shareholders paints a picture of employee contentment and loyalty to the bank.
It speaks about the “Drona” programme, which is aimed at training youngsters for long-term careers in the bank. ‘Drona’ is the bank’s “flagship managerial capability development programme” aimed at assessing a manager as a trainer, mentor, and coach.
Despite all these efforts, KMB’s attrition rate is even higher than that of other banks like Axis Bank, Yes Bank, and the State Bank of India. And the high attrition rate impacts KMB more than the other banks as a large proportion of the new hires are in the under-30 years category. Eighty-four percent of them are new recruits.
The ‘misses’ in the annual report
The theme of the bank’s FY23 annual report is “Acceler@ting Change”. In line with this theme, the bank’s “strategy emphasises on building younger, diverse and future-fit talent at the Group.” Perhaps this explains how Jay Kotak pole-vaulted to become the joint head of the bank’s 811 initiative at the age of 32.
But a bank does indeed need a young, committed workforce to manage operations and deliver on its ambitious growth strategy.
A casual reader of the KMB’s annual report might assume that such a workforce is in place as the bank proudly displays its awards on employee excellence.
However, what KMB fails to mention in the annual reports – “Message from Uday Kotak”, the “Directors’ Report” and “Management’s Discussion and Analysis” – is that employee attrition is accelerating at an alarming pace, as earlier mentioned, overtaking Axis Bank and even Yes Bank.
Nearly one in two employees left the bank during FY23.
The gender gap in attrition rate
Commenting on gender equality at KMB, the board of directors has publicly emphasised the bank’s commitment as an equal opportunity employer with significant female participation in the workforce. However, there remains an important issue that the directors have not addressed adequately: the bank’s higher female attrition rate compared to overall attrition, which is showing an alarming upward trend.
Axis Bank also reported a similar trend in female attrition, but in the absence of any acknowledgement by both banks, stakeholders can only conclude that these workplaces are not providing a conducive environment for female employees.
Considering the strikingly high attrition rates, one would expect the directors and executive management to acknowledge the problem and engage in a thorough discussion of its causes and potential remedial measures.
Regrettably, as with Axis Bank, KMB’s FY23 annual report lacks an in-depth analysis of the issue beyond mandatory attrition disclosure.
But unlike Axis Bank, however, KMB does provide a voluntary disclosure on attrition data in various other sub-segments.
Despite KMB’s claim of adhering to the highest standards of corporate governance, which includes disclosure, transparency, and responsiveness, the lack of commentary on this critical issue raises doubts about the genuineness of their commitment.
To gain further insights, this analyst sent the bank specific queries pertaining to attrition, its likely causes and the lack of any commentary by the board, but the bank, just like Axis Bank, has declined to respond on the matter.
The attrition issue in private sector banks
There is a significant attrition problem within the private sector banking industry, and HDFC Bank, being one of the largest private sector banks, recently disclosed its Q1FY24 results, saying that it experienced an overall attrition rate of 30% in FY23.
At the entry level, the attrition rate was at 40-50%, the bank said in an earnings call. Although the FY23 annual report for HDFC Bank, as earlier mentioned, is yet to be released, in the previous financial year (FY22), HDFC Bank reported an overall attrition rate of 27.6%. The under-30 age group reported an attrition rate of 40.6%, and the sales department faced a higher attrition rate of 43.7%.
On the other hand, ICICI Bank, has traditionally not disclosed attrition figures.
Uday Kotak, who is usually outspoken about the superior efficiency of the private sector, and a leading advocate of privatisation of government banks, has surprisingly remained silent on the reasons behind the higher attrition rates in private sector banking, particularly at KMB.
Meanwhile, the board of directors of KMB has also remained silent in the ‘Director’s Report’, and the word ‘attrition’ is nowhere to be found in the section of human resources.
Interestingly, out of the 12-member board, five members, including the independent chairman and joint managing director, have reported that they possess a specialisation in in human resource management.
These KMB board of directors have declared a specialisation in human resource management
|Name||Age||Designation||Appointed on the Board|
|Prakash Apte||69||Independent Director and Chairman||18 March 2011|
|Dipak Gupta||62||Joint Managing Director||1 October 1999|
|Uday Chander Khanna||73||Independent Director||16 September 2016|
|C S Rajan||61||Independent Director||16 March 2019|
|C Jayaram||67||Non-executive Director||1 May 2016|
Source: KMB FY23 Annual Report (pp 264-270)
High attrition rate and employee turnover could be factors contributing to operational risk for a company, M.K. Jain, former deputy governor of the Reserve Bank of India had said in his speeches.
By remaining silent, the directors of KMB have cast doubt on whether they are fit to serve on any corporate board of directors, especially in the strategic and sensitive sector of banking.
One of the explanations for such a high attrition rate could be a negligible presence of employee unions and officer associations in KMB, where only 2.7% of the employees are members.
High attrition, even at the lower levels, is disruptive to a company’s operations and customer service. Noting that hiring and training entail costs, the board needs to make considerable efforts to lower the attrition rate in the bank.
KMB’s proud proclamations that it follows the highest standards of corporate governance, transparency and accountability carries little credibility when its board remains silent about such massive employee exits. The issue requires intervention by the regulator before a major disruption occurs in the bank.
A questionnaire was sent to Kotak Mahindra Bank on July 16 but despite reminders the bank has declined to respond till the time of going to press. The story will be updated if and when the bank sends a response to the queries.
Hemindra Hazari, is a Securities and Exchange Board of India (SEBI)-registered independent research analyst. He owns equity shares in all the banks mentioned in this report. HDFC Bank subscribes to this analyst’s research and a member of this analyst’s family is employed with HDFC Bank. Views expressed are personal.
Disclaimer: This Insight does not contain and is not based on any non-public, material information. To the best of my knowledge, the views expressed in this Insight comply with Indian law as well as applicable law in the country from which it is posted. I have not been commissioned to write this Insight or hold any specific opinion on the securities referenced therein. This Insight is for informational purposes only and is not intended to provide financial, investment or other professional advice. It should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security.