New Delhi: Once upon a time, Uday Kotak told Anand Mahindra – “I can raise funding in 72 hours.” At that point, 72 hours was called lightning speed. It was an offer that Anand Mahindra could not refuse.
In his informative series, ‘Tycoons of India’ – Dr. Vivek Bindra dives into the journeys of influential business figures who have transformed the Indian and global landscapes.
Each episode unfolds the remarkable stories behind their successes, exploring the strategies, challenges, and innovations that shaped their careers.
In the latest episode, Dr. Vivek Bindra talked about a remarkable journey in finance—how Uday Kotak, the founder of Kotak Mahindra Bank, carved out a space for himself in the fiercely competitive banking sector without relying on massive capital investment. His journey teaches us that a powerful strategy can be more valuable than an immense budget, and that a clear vision and innovative approach can defeat even the biggest competitors.
Kotak Mahindra Bank stands out as a leader in India’s banking sector. Trusted by the country’s top 100 richest families, the bank has established a strong reputation under Uday Kotak’s visionary leadership, who was named the ‘Best CEO in Banking’ in 2019. Kotak Mahindra Bank boasts the highest CASA ratio at 45.51%, surpassing major players like HDFC and ICICI. Additionally, it leads in return on capital employed (ROCE), outperforming its peers with a figure of 7.86, showcasing its financial efficiency and competitive edge.
Uday Kotak joined his family’s cotton trading business at the age of 20, alongside pursuing his MBA. During his nine months there, he learned valuable lessons about managing clients, understanding labor concerns, and closing deals. He also observed a fundamental issue: “Age & hierarchy mattered more than merit.” This led him to his first leadership lesson: Meritocracy.
Recognizing the limitations of his family business, Uday sought a venture where talent and merit would be valued above all. After completing his MBA, he looked to establish his own business and sought guidance from his father’s friend, Pradip Harkisandas.
Pradip, known as the “Big Daddy of Merchant Banking,” ran Harkisandas Lakshmichand, a prominent firm specializing in corporate finance, portfolio management, derivatives trading, and in-depth company research. By spending time at Pradip’s office, Uday learned the ins and outs of the financial markets, developing a deep understanding of client requirements, financial statements, and regulatory compliance.
Recognizing the Opportunity
After listening to over 100 client conversations at Pradip’s office, Uday identified a pressing problem for many businesses: working capital.
Uday identified a significant profit opportunity by analyzing the following:
Bank deposit rate: 6%
Bank lending rate: 17%
Profit margin for banks: 11%
Recognizing this profit gap, Uday started his first venture, Kotak Capital, in 1982. His goal was simple: bridge the gap between depositors and borrowers by offering a better deal to both parties.
The Power of Branding and Partnerships
With initial success under his belt, Uday turned to other opportunities. Around the same time, Anand Mahindra returned from Harvard and joined Ugine Steel as General Manager. Uday learned about Ugine Steel’s issues with working capital and saw another opportunity. He met with Anand Mahindra and proposed a partnership, promising to raise funds in just 72 hours—a promise that impressed Mahindra.
Uday recognized the value of associating with an established brand like Mahindra.
Inspired by Western financial services firms like Goldman Sachs, Uday knew that including a family name in the company’s name could significantly boost customer trust. Thus, Kotak Mahindra Finance Limited was born in 1985 with an initial equity capital of ₹30 lakhs. The funding came from a mix of Uday Kotak’s personal contributions, the family business, and friends and relatives.
A visionary move, this partnership established the foundation of a trusted financial brand. An investment of ₹1 lakh in the company in 1985 would now be worth ₹2,160 crores—a clear testament to the strength of the brand and the strategy behind it.
Here’s how Uday tackled the challenge:
In the late 80s, the popular car brand Maruti had a six-month waiting period for delivery.
Citibank offered car loans at 13% interest, but customers still had to wait six months for delivery.
Uday came up with a unique strategy. He pre-booked cars in bulk in the company’s name, enabling customers to receive instant delivery—on one condition: financing had to be done through Kotak Mahindra Finance at the same 13% rate. By financing car bookings at a 10% down payment and leveraging a line of credit from banks,
Kotak made a calculated move:
Leveraging Global Opportunities
Uday’s strategic thinking wasn’t limited to local opportunities. In 1991, the liberalization of the Indian economy opened avenues for foreign investments, and Global Depository Receipts (GDRs) emerged as a popular instrument for Indian companies to raise funds internationally.
However, the process presented challenges:
Foreign investors lacked knowledge of the Indian market.
Indian companies found it difficult to connect with foreign investors.
Recognizing another opportunity, Uday sought a partnership with Goldman Sachs, one of the world’s largest investment banks. With no presence in India, Goldman needed a trusted partner to facilitate GDRs. Uday approached his friend, Sanjiv Mishra, who worked at Goldman Sachs in the US, and successfully secured a partnership.
This partnership cemented Kotak’s status in the international financial landscape, enabling it to bridge the gap between Indian companies and global investors.
In the competitive world of finance, Uday Kotak has demonstrated that to defeat a large competitor, it takes strategy, not money. His journey is a masterclass in leveraging market opportunities and building partnerships that multiply growth.
Dr. Vivek Bindra encapsulates this legacy perfectly, stating, “Most people go to banks to build businesses, Uday Kotak built a bank to do business.”
Dr. Vivek Bindra explains that the ‘Tycoons of India’ series was created for those interested in business and aspiring entrepreneurs. In this series, he discusses the business strategies of 52 successful business tycoons in India.
So far, seven episodes have been released, which have been well received.
You can watch the complete episode on Uday Kotak’s business strategy and all other episodes on Dr. Vivek Bindra’s YouTube channel.
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