New Delhi. Kotak Mahindra Bank is now 40 years old. The bank’s founder Uday Kotak is no longer in the executive role but he is definitely on the board. Uday Kotak, with limited capital, a different vision and the support of Anand Mahindra, laid the foundation of one of India’s most trusted financial institutions forty years ago at a time when the word “startup” was not even a part of India’s business dictionary. Uday Kotak started Kotak Mahindra as a financial services provider company with a capital of Rs 30 lakh. He had raised his share of the money by borrowing. Today the market capitalization of Kotak Mahindra Bank is Rs 4.18 lakh crore. In an interview given to cnbctv18, Uday Kotak explained in detail about the journey of Kotak Mahindra Bank from its inception to climbing the ladder of success.
Uday Kotak wanted to become a cricketer in his childhood. He could not become a cricketer due to injury but he has hit a lot of fours and sixes on the business pitch. His family used to do cotton trading, but Uday did not like this family business very much. He chose to stay away from his family. In 1985, he laid the foundation of an investment company.
that period was difficult
Uday Kotak told cnbcTV18 that India’s financial sector was highly controlled in 1985. “97% of banking was government owned. Interest rates were very high. Borrowers had to pay 17% and depositors got only 6%. Even small industries supplying to big companies found it difficult to raise funds at such high interest rates. He saw this drawback as an opportunity and created his first business to solve this problem.
Uday said, “We started with bill discounting. The 11% margin that banks used to get, we decided that this benefit could be passed on to consumers.” Kotak’s company provided funding to SMEs at 16% and gave individuals the opportunity to rediscount those bills by giving 12% returns. It was a ‘win-win’ model that provided working capital to small businesses at affordable rates. This made Uday Kotak’s company grow rapidly in 1985–86.
Direction changed after meeting Anand Mahindra
Kotak met Anand Mahindra. Anand had returned from Harvard and was working at Mahindra Eugene Steel. Uday Kotak explained to him a financial model in which Mahindra’s suppliers could get immediate payment at low interest. Mahindra liked this model very much and he agreed to invest money in Uday’s company.
Started company with Rs 30 lakhs
Uday said, “We started with a total of ₹30 lakh. I borrowed and invested ₹13.5 lakh. Anand Mahindra invested ₹4.5 lakh. The rest of the friends contributed. This was our initial capital. In many ways, Anand Mahindra was our first venture capitalist.”
How did Kotak Mahindra get its name?
This partnership was also important in determining the identity of the company. Taking inspiration from global financial giants, Kotak insisted on keeping both the names – “Kotak” and “Mahindra” in the company name. Uday said, “Goldman Sachs, Morgan Stanley, Merrill Lynch… these are all family names. Putting a family name gives confidence to customers. It means we are putting our reputation at stake.”
Followed professional entrepreneurship
Despite being a founder-led organization, Kotak developed a culture of “professional entrepreneurship”. A model that incorporates both entrepreneurial risk and professional discipline. Kotak says, “Many entrepreneurs don’t become professionals, and many professional entrepreneurs don’t think. We believed that a combination of the two leads to long-term success.” It was this vision of Uday that paved the way for big steps like capital markets partnership with Goldman Sachs, innovations in car finance, mutual funds, insurance and ultimately banking.
There were many challenges
Uday said that in the initial years, limited resources and rigid regulatory framework posed a lot of challenges. Kotak considers this as a hidden advantage. He says, “India of 1985 was on the cusp of change. At some level, we were in the right place at the right time.” Four decades later, this ₹30 lakh startup has grown into one of India’s largest and most trusted financial institutions. And for Uday Kotak, the most important thing is trust, building trust by putting his name and reputation at stake.
Caution, simplicity and humility bring success
Uday Kotak says that for successful business it is necessary to have three qualities. Caution, simplicity and humility. Prudence is necessary to remain stable and durable in the long run. Your products should not be too complex. That means if it is simple then people will accept it easily. Uday says that sometimes bankers start considering themselves everything. This attitude is not right. To be successful it is important to be humble.
