After almost two decades of building large businesses at Seattle-based Amazon, Bhavnish Lathia was longing for fresh challenges. A year at a start-up didn’t turn out as he had thought. Last August, he packed his bags for India and headed to Kotak Mahindra Bank’s (KMB) headquarters in Mumbai’s BKC. Elsewhere in the US, Milind Nagnur had been hopping from one global bank to another—from JP Morgan, Citibank, to Wells Fargo for more than two decades. The desire to innovate and disrupt the traditional ways of banking led him to fintech firm Early Warning Services, which pioneered real-time payments services in the US, akin to India’s National Payments Corporation of India. After witnessing India’s tech prowess via the India Stack, he decided to return home; KMB was a perfect fit. While both joined KMB around the same time in 2022, Rohit Bhasin, a veteran from FMCG behemoth Unilever, joined this February. Bhasin’s last assignment dealt with repositioning the once iconic Ponds brand while based out of Singapore. A few months later, Bhaskar Kumar—who has honed his skills at GE Capital, HSBC and Bajaj Finserv—came on board. All have been handpicked by KMB Founder and Director Uday Kotak, who on September 1 transitioned from MD & CEO to a non-executive role after two decades of building the institution that has total assets of Rs 4.89 lakh crore.
Before coming on board, these four new hires had extensive meetings with Whole-time Directors Shanti Ekambaram and K.V.S. Manian, the two aspirants to the post of MD & CEO. Ekambaram and Manian, both in their 60s, will have around a decade to steer the bank, given the Reserve Bank of India’s (RBI) age limit of 70 years. (See box Growth Recipe) A new organisational structure is emerging at KMB as MD & CEO Dipak Gupta’s tenure ends in December; another veteran Gaurang Shah, who was Whole-time Director, retired in October 2022.
But this shift in leadership doesn’t bother the new recruits. Under Kotak’s watchful eye, there is already a new strategy and team in place to transform KMB into a tech-savvy institution akin to Amazon in terms of customer excellence. And Kotak, 64, will keep a close watch on the proceedings as a member of the board.
The New Team’s Mandate
Let’s travel back in time to see how the new strategy unfolded. As the impact of Covid-19 began to wane, Kotak and his senior team recognised the need for new skill sets. The sector had undergone fundamental shifts; with more millennials becoming its customers, there was a need to be more like Amazon: constant availability, seamless transactions, and robust cybersecurity. KMB’s plans were set in motion about a year and a half ago. “There are three pillars of the new strategy. The first is to offer an Amazon-like experience. The second focusses on enhancing the employee experience by providing them with the right tools and systems. The third pillar is the emphasis on increased productivity,” explains Manian. Today, a customer builds trust in a company by way of experience. “We have to re-imagine what banking means for this new generation,” says Lathia, who is Chief of Customer Experience & Head of Technology of Consumer Bank.
In fact, there were some subtle hints of the new KMB in Kotak’s messaging to shareholders in 2022-23: it talked about “change” in 2021-22 and promised “accelerating change” the very next year. The pace of “change”, which the bank is now targeting, has intensified post-Covid-19. “In the future, banks will essentially be tech companies offering banking products,” says Ekambaram. “What does it take to build a sustainable institution for the future? Product excellence, customer obsession, and trust. We, at Kotak, are in the midst of this mindset shift for these priorities,” Kotak had said in his address to shareholders this year.
As part of this, KMB has prioritised hiring top-tier global talent in technology, customer experience, marketing, branding, and data and risk analytics. That’s where Lathia, Nagnur as Chief Technology Officer, Bhasin as Head of Retail Liabilities Product and Chief Marketing Officer, and Kumar as Head of Retail and Commercial Risk fit in. They, in turn, handpicked their teams from hundreds of people from companies like Amazon, X, Ola, Microsoft, and more, adding to the bank’s workforce of 73,481. “Make Kotak a customer-centric bank. Start from what consumers need and build a product suite.” That in a nutshell is Kotak’s advice to the new hires. But this shift comes with some challenges. For instance, the bank’s employee turnover surged to 45 per cent in FY23 from 39 per cent in FY22, with the bank citing junior-level exits in sales, call centres and collections as the primary cause.
Two-in-a-box Strategy
Currently, banks are categorised by product or loan verticals. But the customer experiences the bank horizontally. So, it requires a fundamental transformation of a bank from a traditional one that uses IT as a support function to one that operates more like a technology-centric and customer-first organisation. “There is a partnership model in play. We are integrating tech-savvy professionals who can collaborate with our banking experts. This ensures the delivery of products that not only meet banking standards but also resonate with the modern user’s expectations,” says Ekambaram. For instance, the IT and business teams sit together, take part in strategy decisions, and develop a product together. Such pairings, called “lighthouses”, are being established throughout KMB. This is part of the ‘Two-in-a-box’ strategy, wherein two leaders work together to make decisions and lead a team.
The centre of activity is not just the headquarters in Mumbai. Instead, the IT hubs—Bengaluru, Hyderabad, and Gurugram—are the new innovation centres. The mobile banking team is based out of Mumbai, Gurugram, Hyderabad and Bengaluru, while the lead engineer operates from Hyderabad. And while the risk analytics team is in Mumbai, the person heading it is based in Bengaluru. “You have to be where the talent is,” says Nagnur. The new strategy is to build everything in-house to be available at all times without any delay or transaction failure. “What was done in three weeks by the vendor can now be done in two days. But this means we have to almost run an IT company inside the bank,” Nagnur adds.
The major investments are taking place in IT architecture, security, data analytics, and talent. “Today, technology complements business. But in the future, technology will be the business,” says Ekambaram. KMB wants its banking app to emulate popular ones like Amazon, or Swiggy—swift transitions, reliability, and consistent performance. That’s important because KMB’s mobile app is its largest branch. “Currently, 98 per cent of our savings bank transactions occur through it. The foremost priority is ensuring an optimal customer experience,” says Ekambaram.
It’s not all about new people though. “We are upping the digital quotient of people at every level, including leadership levels. We are upgrading skills. We’re also rotating people,” says Ekambaram. “Culturally, it’s a big change in how the bank is working now,” says Manian.
A New Way
Months after joining, Bhasin hit the jackpot with a product called ActivMoney. This sweep deposit product, designed to give interest rates similar to fixed deposits in savings accounts, is seeing double-digit growth and already constitutes 7-8 per cent of the bank’s total deposits. Another priority for KMB will be granular deposits and liability franchises. (See box How They Stack Up). Bhasin has also instituted a research function within KMB. “We have put in place a programme called Meet Your Customers to get feedback,” he says.
Bhasin works closely with asset teams to examine the key drivers for a customer to buy a product. For instance, cash backs and discounts are key drivers for credit card customers; for personal loans, it is convenience; and interest rates are key for home loans, he explains. “The exercise… [is helping the bank to] improve the customer experience,” says Bhasin.
In fact, at KMB, unsecured loans—particularly credit cards, personal loans, and small business loans—have surged from 3 per cent in pre-Covid-19 times to 10 per cent now. “We will go up to the mid-teens,” says Ekambaram. In the past six to seven years, the growth came from large corporates. But there are only a few big names. So, this April, KMB carved out a separate mid-corporate segment. “There is a huge opportunity in the mid-market segment where, apart from lending, there is a huge opportunity to do cash management and other fee-based products,” says Manian.
Then there’s the credit space where the world has moved to working on data to qualify consumers. Banks now pre-qualify customers and make them offers. This is where Kumar, Head of Retail and Commercial Risk, comes in.
Challenges and More
However, there will be challenges. The industry dynamics are set to change with the entry of a digital-first Jio Financial Services. Plus, the stock market is already nervous about Kotak’s exit. But the fundamentals of the bank are very strong. “Their growth is higher than market growth. Their return ratios, like ROCE and ROE, are very high,” says Ajit Kabi, Banking Analyst at LKP Securities. Under the new leader, KMB will also explore inorganic growth opportunities. As Ekambaram says, KMB is open to “anything that’s value-accretive”.
The biggest challenge for KMB will be to keep its flock together. Recent succession exercises at large private lenders have seen senior executives jumping ship. But Tej Shah, Portfolio Manager at Marcellus Investment Managers, says succession at KMB is a different ball game. “Kotak, as promoter, still holds a substantial stake in the bank. He still continues as a board member.” KMB is a part of the Marcellus portfolio.
Experts believe all future major decisions made by the board with Kotak as a member will reflect his expertise and experience. “A conservative bank doesn’t go down if the CEO leaves,” says a banking analyst. The new CEO will also have to have the right equation with the Founder. Plus, Kotak’s son Jay joined the bank seven years ago. Jay Kotak, Vice President and Co-head of digital bank Kotak811, is expected to follow the normal career path.
Kotak has put in place some good practices that will stand KMB in good stead. For instance, a 12-member Group Management Council meets at 9:30 am every Monday to brainstorm risks, new opportunities, regulatory framework, global developments, innovations, etc. “This speeds up decision-making as there are many synergies between the group companies and the bank,” says a member. Kotak allowed an entrepreneurial culture by allowing professionals to run businesses independently. The group also follows a very conservative approach to doing business, with no asset quality deterioration. With the new recruits readying to take charge, Lathia says that KMB’s value system impressed him the most.
As a professional, Nagnur has seen many leadership transitions. When he began his tenure at JP Morgan Chase in 2001, William Harrison was at the helm as Chairman and CEO. A few years later, a merger with Bank One was announced. Despite JP Morgan Chase being 10x larger than Bank One, James Dimon, the CEO of Bank One, took over as Chairman and CEO of the combined entity, and continues till this day. “Change is a constant in life. Transitions are an inevitable part of the journey,” says Nagnur. Uday Kotak couldn’t agree more.
@anandadhikari