Uday Kotak built his Kotak Mahindra Bank Ltd. over decades to become Asia’s richest banker. After India’s regulator slapped his bank with a surprise ban, he’s facing one of his biggest tests yet – and a dip in wealth.

The lender’s shares tumbled as much as 13% on Thursday after it was barred from adding new customers through its digital channels and from issuing fresh credit cards. As the largest shareholder with a stake of almost 26%, the billionaire founder bore the heaviest brunt from the selldown, the most in four years. 

That saw his wealth decline by $1.3 billion, according to the Bloomberg Billionaires Index. He was worth $14.4 billion as of April 24.

Rival Axis Bank Ltd. overtook Kotak’s market capitalization for the first time since Sept. 2016. Axis’ shares had surged after its earnings beat analysts’ estimates. 

The Reserve Bank of India cited governance and risk issues about Kotak’s technology systems as reasons behind its ban. It found deficiencies and non-compliance in various processes over two years – from a lack of data security and leak prevention strategies to vendor risk management  – according to a statement late Wednesday. 

Kotak said in response that it has taken measures for “adoption of new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest.”

It’s not Kotak’s first run-in with the regulator. The billionaire previously took India’s central bank to court over the size of his stake in the lender. Kotak ultimately agreed to reduce his ownership in 2020, ending the feud.

New CEO

It was only at the start of this year that Kotak handed the reins over to new Chief Executive Officer Ashok Vaswani. Vaswani has said scale will be critical for the bank’s growth, and that the lender has been investing in technology.

Kotak, a native of the western state of Gujarat, set up an investment company in 1985 with a 3 million rupee loan ($41,000) from family and friends and partnered with Mahindra the following year.

The financier was Kotak Mahindra Bank’s CEO since its beginning and gained more control of it in 2006 by ending a partnership of more than a decade with Goldman Sachs Group Inc. 

Almost 98% of the transaction volume in Kotak’s savings accounts were by digital or non-branch methods, according to its most recent investor presentation for the quarter ended Dec. 31.

“The ban on online customer acquisition will have an impact on Kotak Mahindra Bank’s growth as it is one of the slowest lenders for physical branch expansions,” said Ashutosh Mishra, banking analyst at Ashika. “The RBI ruling will create a negative sentiment on the bank.”

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

New Delhi:

Banker Uday Kotak has resigned as CEO and Managing Director of Kotak Mahindra Bank.

In a letter to Prakash Apte, Chairman of the Board of Directors, Mr Kotak said he has resigned “with immediate effect” though he still has a few months to go.

“I have mulled over this decision for some time and believe this is the right thing to do,” Mr Kotak said in the letter.

“Succession at Kotak Mahindra Bank has been foremost on my mind, since our Chairman, myself and Joint MD are all required to step down by year-end. I am keen to ensure smooth transition by sequencing these departures. I initiate this process now and step down voluntarily as CEO,” he said.

Meantime, the current joint MD Dipak Gupta will function as MD and CEO, subject to approvals.

“As founder, I am deeply attached to brand Kotak and will continue to serve the institution as non-executive director and significant shareholder. We have an outstanding management team to carry the legacy forward. Founders go away, but the institution flourishes into perpetuity,” Mr Kotak said.

My letter is attached pic.twitter.com/vcSIEcvy2r

— Uday Kotak (@udaykotak) September 2, 2023

Mr Kotak has led the group in a broad range of financial services for 38 years. He has said he believes the true measure of performance is sustainable value creation.

The group’s vision for equitable prosperity also extends beyond financial services. The group via Kotak Education Foundation works with some of India’s most economically underprivileged communities, attempting to alleviate poverty through education and livelihood programmes.