In a surprise move, Uday Kotak stepped down as the Managing Director and Chief Executive Office (CEO) of Kotak Mahindra Bank, effective September 1.

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Soon after announcing his decision on September 2, the 64-year-old who will now hold the post of non-executive director, engaged in an exclusive interaction with CNBC-TV18's Shereen Bhan reflecting on the reason behind the move and the way forward for the bank.

An important message he said, is "what you create must outlive you, there has to be purpose, process passion, trust and transparency as you build an institution. Very important to preserve the essence of entrepreneurship even in one of the most regulated sectors."

Here are edited excerpts from Uday Kotak's exclusive interaction with CNBC-TV18

Q

: Why did you feel the need to make this decision? We spoke barely a week ago and you did not give any indication on how soon you were anticipating to make this change. You did talk about succession but did not give any indication or hint about you looking at this decision being barely a week away?

Uday Kotak: The bank is required by the Reserve Bank (of India) to have three senior positions step down no later than December 31, 2023, which is the Chairman, Managing Director and the Joint Managing Director. So we are all in what is called the "transition phase" as per the regulatory guidelines. And since all three of us were supposed to be going out before December 31, I felt it was appropriate that we sequence the transition.

Therefore, I took the decision and went to the board with my resignation and the board has accepted it. At the same time, the board has appointed Dipak Gupta, in the interim as the MD and CEO, subject to approval from the Reserve Bank of India (RBI).

Dipak Gupta's term also ends on December 31. The bank has also confirmed today that it has made its application for the new CEO well in time to the RBI and we are awaiting the RBI's approval on that.

It is a sequencing process, I stepped down today, Gupta continues in the interim up to December 31 and hopefully within this period, we will have RBI's approval for the CEO who would then take charge from January 1, 2024.

So, this is a very thought through sequencing process. Our current chairman also retires on December 31.

Q: Gupta's appointment is an interim measure, pending the RBI's approval. But, you were also meant to submit names to the RBI as proposals of your possible successors by August 31. Have you sent in those names?

Kotak: We have sent those names well in time to the Reserve Bank of India. I would also like to clarify that the board has appointed me as a non-executive director on the board today.

Q: How many names have been sent to the Reserve Bank of India? Is it two or more?

Kotak: The requirement is at least two names and the bank has sent two names, in order of priority.

Q: And are these both internal candidates or is it a mix?

Kotak: I think you will have to wait for that information.

Q: You have built an institution that will hopefully outlive its founder, and pretty much on the lines of what has happened globally with financial institutions. How confident do you feel at this point in time in being able to hand over the reins, hand over the baton as you make this transition?

Kotak: Kotak Mahindra Bank now has more than 1,00,000 employees as a group. We started in 1985 with three employees, 300 square foot office space in Mumbai and we've come some way over the last 38 years. I see the strength of our management team, the depth of our institution as quite outstanding, and I'm very confident that the institution Kotak Mahindra Bank, which I'm also very proud of is a majority Indian owned institution, will play a major role in the future of India.

Q: You have many times tried to re-emphasise the Indian ownership of the bank versus the large FII holdings in others, but couldn't this have happened in December, which is when your term was meant to end? Why the need to do this because even Gupta's appointment is an interim appointment.

Kotak: One, is the point of sequencing and transition, it is important that we sequence and transition. The second is that my older son's marriage is in November so I have personal and family commitments as well which I would like to give fair attention to. The proximity thereafter to my retirement and marriage was also very small.

Keeping all these facts in mind, I've been mulling over this for a while. And I just felt that it is better that I move and step down in good time, rather than hanker till the last date.

Q: You talked about sequencing and this is the first big step in that sequence that you are laying out up until December. What's next now in terms of sequencing from hereon?

Kotak: Now that we have taken this step, we have to wait for a decision on the CEO. We have also made an application for the non-executive chair for which again we will wait for the RBI for its decision. Both these are important decisions, which we will await from the regulator.

Extremely important for us is to make sure that the institution continues to perform. It's a very stable institution, it has solid financials. And we also want to make sure that we reduce the uncertainty in the minds of investors as we go forward.

Q: But wouldn't the uncertainty linger? Because, we don't know who the eventual successor will be. And there is still a big question mark on whether it will be an internal candidate or an external candidate and all of this is still pending RBI approval?

Kotak: All the decisions which the bank has had to take (submitting the names for the CEO, submitting the name for the chairmanship, Kotak stepping down and having Dipak Gupta become the interim CEO), are to put in place a commitment to smooth transition as we go forward. I genuinely believe that the way forward is looking very, very positive for the strength and stability of Kotak Mahindra Bank.

Q: Has there been any communication with the Reserve Bank? Not on the names that have been sent, but on the decision that's been taken for you to step down and Gupta to come in?

Kotak: Yes, after the board decided, the bank has communicated with the Reserve Bank on the decision of the board.

Q: Informally, there was no sounding out with the regulator about this move?

Kotak: The board of the bank is fully conscious of its fiduciary responsibility, including confidentiality to all its stakeholders, and the board has acted after I took the decision to step down. Therefore, the decision to step down was taken by me, it was a voluntary decision and there has been no discussion of any nature prior to that decision with the Reserve Bank of India.

Q: What is the aspiration now as you hand over the reins, as you pass on the baton to your successor? What would be the order of priorities?

Kotak: My sense is Kotak Mahindra Bank has a tremendous opportunity. The Indian financial sector has an opportunity. I believe India is in a unique position in history to transform itself in a significant manner. And, I would love to see as a non-executive director and a significant stakeholder to see this institution flourish in the years ahead.

Q: What has been the big learning and the big lesson for you? What would you take away at the end of this four decade long journey? As you reflect back, what are some of the pivotal moments that define your and the bank's journey?

Kotak: The most important message, which I take for myself is that what you create must outlive you. And there has to be passion, purpose and process. There has to be trust, and transparency as you build the institution along the way, and extremely important to preserve the essence of entrepreneurship, even in one of the most regulated sectors.

Q: How do you feel today because it is a big decision, a very emotional decision? As you made this voluntary decision, what were the thoughts that were going on in your head?

Kotak: I am really very grateful to all the stakeholders, to the board, to the employees, to the regulators, to my family, friends, and all others who have helped me live my dream.

First Published:Sept 2, 2023 6:11 PM IST