Why Did Kotak Mahindra Bank Ignore Internal Talent and Choose a CEO With Negligible Indian Experience?

Ashok Vaswani's selection was unexpected, as the media had reported the shortlisting of two internal candidates for RBI's approval.

On October 21, Kotak Mahindra Bank (KMB) announced that the Reserve Bank of India (RBI) has approved the appointment of Ashok Vaswani as the bank’s next managing director and chief executive officer.

He has been appointed as MD and CEO for a period of three years. He will join on January 1, 2024.

Vaswani’s selection was unexpected, as the media had reported the shortlisting of two internal candidates for RBI’s approval. They were K.P.S. Manian, head of corporate, institutional and investment banking and Shanti Ekambaram, head of consumer banking.

Prakash Apte, chairman of KMB, said, “We are pleased to announce that [the] RBI has approved the appointment of Ashok Vaswani as the next MD and CEO of KMB. Ashok is a global banking leader with a proven track record of building and growing businesses at an international scale and has successfully steered organisations to greater heights. We are confident that Ashok will accelerate change and drive growth at Kotak.”

Uday Kotak, founder and director, KMB, said, “I am delighted that the RBI has approved our recommendation, Ashok Vaswani, as the next CEO of Kotak Mahindra Bank. Ashok is a world class leader and banker with digital and customer focus. I am proud that we bring a ‘Global Indian’ home to build Kotak and India of tomorrow.”

Also read: The Issue of High Attrition Rate at Kotak Mahindra Bank Fails to Find a Spot in Annual Report

Ignoring internal talent

Typically, successful organisations take pride in grooming CEOs from within. The board’s Nomination and Remuneration Committee is responsible for nurturing internal talent for leadership succession, especially for strategic posts such as the post of the CEO.

When Aditya Puri retired from HDFC Bank, Sashi Jagdishan (then 56 years of age), a senior HDFC Bank executive, succeeded him. In ICICI Bank, after Chanda Kochhar was sacked by the board, Sandeep Bakshi (then 58 years), a long-serving ICICI Bank senior executive, was appointed.

In contrast, in the case of banks in which outside candidates replaced the CEOs, it was either because the banks were facing some serious issues and internal candidates were regarded as being part of the problem, or because the RBI lacked confidence in the internal candidates recommended by the board. Such were the cases in Axis Bank, when Amitabh Chaudhry (then 55 years) took charge from Shikha Sharma; in Yes Bank, when Ravneet Gill (then 56 years) replaced Rana Kapoor; and in RBL Bank, when R. Subramaniakumar (then 63 years) replaced Vishwavir Ahuja.

In KMB’s case, the members of Uday Kotak’s leadership coterie were all employees who had been associated with the bank/group for a long period. It was, therefore, highly unusual for the board of directors to have ignored internal talent and recommended two individuals for the CEO position to the RBI, at least one of whom was an external candidate.

Senior executives in KMB

Name Designation Age Date of joining KMB Previous employment
1 Dipak Gupta Interim MD & CEO 62 January 15, 1992
2 K.V.S. Manian Executive Director 62 February 6, 1995 Premier Auto Electric
3 Shanti Ekambaram Executive Director 61 October 15, 2002 Kotak Mahindra Capital
4 Jaimin Bhat Group President 61 June 1, 2002 Kotak Mahindra Capital
5 Paul Parambi Group President 58 May 15, 2006 Kotak Mahindra, UK
6 Oisharya Das Group President 56 September 27, 2004 Kotak Securities
7 T.V. Sudhakar Group President 60 January 7, 2013 RBI
8 Virat Diwanji Group President 60 February 3, 2004 Hero Financial Services

Source: KMB

By recommending Vaswani, a senior citizen of nearly 63 years of age, and ignoring internal talent for the CEO position, the board of directors, and especially the Nomination and Remuneration Committee of KMB, have abysmally failed in developing CEO succession in a bank in which senior leadership have been long-serving KMB/Kotak group employees. In nationalised banks, CEOs have to retire by 60 years of age, while in the State Bank of India, the retirement age is 62 years.

Apte, the chairman, is “pleased”, and Uday Kotak, founder and non-executive non-independent director, is “delighted” to have a nearly 63-year-old individual as the next CEO of the bank. It’s worth noting that his Linkedin profile says he quit commercial banking in July 2022, and that he has banking experience outside India.

Chairman of the Board and members of the Nomination and Remuneration Committee

The board of directors should have been long-term planning for CEO succession. This was the primary responsibility of KMB’s Nomination and Remuneration Committee, chaired by Amit Desai until FY2018, and subsequently by Farida Khambata until FY2022. Additionally, Apte, the board’s chairman, has been a member of the Nomination and Remuneration Committee since FY2015.

The Nomination and Remuneration Committee role in CEO succession

Over the last nine years, the Nomination and Remuneration Committee’s role in CEO succession was to ensure that with the exception of two individuals, the entire top leadership were senior citizens by FY2023 to succeed Uday Kotak. Even if the Nomination and Remuneration Committee had admitted its failure in grooming younger internal talent for CEO succession, they could have shortlisted external executives in their mid-50s who have an exposure to Indian banking, and brought them in as executive directors at an earlier date, in order to expose them to KMB’s work environment, culture and senior executives.

Now Vaswani, with negligible experience in Indian banking, will be parachuted from a pleasant retirement from global commercial banking directly into the KMB CEO post. On landing, he is expected to do wonders in implementing a digital strategy in the Indian environment.

An alternative explanation for the selection of Vaswani is that he was a last-minute selection; the banking regulator, the RBI, may have informed the KMB board that it would not approve an internal candidate, as it was uncomfortable with Uday Kotak’s continuance on the board as a non-executive director. This analyst had argued that Uday Kotak’s retention on the board as a non-executive non-independent director would make him effectively the back-seat driver of the bank, without any of the associated responsibilities that come with such a position. It is poor corporate governance to allow a long-serving promoter CEO to continue on the board as a non-executive director after stepping down as the CEO.

If Vaswani’s selection was made under such circumstances, on account of Uday Kotak’s continuance on the board, then again the Nomination and Remuneration Committee and the board have to be held accountable.

For the last five years, KMB’s stock has been underperforming as compared to Nifty-50 and Bank Nifty. This could be attributed to apprehensions regarding a leadership change.

The stock market was in favour of an insider to succeed Uday Kotak, as it would have indicated continuity in the bank’s strategy. Moreover, the market was familiar with the bank’s senior executives. The announcement of a relatively unknown external candidate, with negligible experience in Indian banking, and who had apparently retired from commercial banking, is expected to make the stock market even more apprehensive.

KMB’s share price versus Nifty-50 and Bank Nifty

October 24, 2018 October 23, 2023 Change (in %)
Nifty-50 10,030 19,282 92.2
Bank Nifty 24,421 43,151 76.7
KMB 1,159 1,741 50.2

Source: National Stock Exchange

Also read: After 20 Years, Kotak Mahindra Bank Still Can’t Manage Without Uday Kotak

Uday Kotak’s continuance on the board

The KMB board and its Nomination and Remuneration Committee have failed stakeholders by recommending Uday Kotak’s continuance as a non-executive non-independent director, which may have resulted in regulatory displeasure and consequently led to the last-minute selection of an external retired global banker as the CEO.

Having Uday Kotak’s presence on the board will make it extremely difficult for Vaswani to forge an independent policy for the bank. If there is a disagreement between him and Vaswani on future strategy, or if senior executives undermine Vaswani’s authority and consult with Uday Kotak, or if there is a difference of opinion on a further fast-track promotion for Jay Kotak, the son of Uday Kotak, who will prevail? Whom will the board support?

A long-serving promoter CEO, who continues on the board as a non-executive non-independent director, undermines the authority of not only the CEO, but also the chairman of the board.

While addressing board members of urban co-operative banks on September 25 and commenting on the excessive dominance of one or two directors at board meetings of large commercial banks, RBI governor Shaktikanta Das, had said:

“We have told banks that this is not the way. One or two directors cannot dominate, excessively dominate. They should not think that whatever they say is correct and others do not get a chance to speak.”

This analyst has repeatedly highlighted (here and here) the major risk associated with KMB, concerning the calibre of the bank’s board of directors. The selection of Vaswani as the CEO reinforces this concern.

Hemindra Hazari is a Securities and Exchange Board of India (SEBI) registered independent research analyst.


I, Hemindra Hazari, am a Securities and Exchange Board of India (SEBI) registered independent research analyst (Regd. No. INH000000594). I own equity shares in all the companies mentioned in this report. HDFC Bank subscribes to this analyst’s research and a member of this analyst’s family is employed with the bank. Views expressed in this Insight accurately reflect my personal opinion about the referenced securities and issuers and/or other subject matter as appropriate. 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.

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