Kota Mahindra Bank chief managing director and chief executive officer, Uday Kotak on May 3 said the bank is prepared with a succession plan after his term ends in December, 2023 as per the new rules of the Reserve Bank of India (RBI) on terms of chief executives at banks.
"Succession planning is a continuous process that every bank or company thinks of," Kotak told reporters after announcing the bank's January-March quarter results on May 3. "You are going to see me as CEO at least till December, 2023."
According to the RBI rules announced on April 26, in the case of MD&CEO or WTD (whole-time director) who is also a promoter/ major shareholder, the incumbent cannot hold these posts for more than 12 years. In the case of promoter CEOs, at the sole discretion of the Reserve Bank such MD&CEO or WTDs may be allowed to continue up to 15 years. Kotak has already completed 17 years as KMB's CEO.
By the time Kotak’s term ends on January 1, 2024, he would have completed 20 years at the post.
Kotak Mahindra Bank reported a 33 percent year-on-year (YoY) increase in standalone profit at Rs 1,682.4 crore for the quarter ended March 2021. The lender clocked 8 percent YoY rise in net interest income at Rs 3,843 crore for the quarter.
Net Interest Margin (NIM) for Q4FY21 was at 4.39 percent. Operating profit for the quarter recorded at Rs 3,407 crore, up 25 percent from Rs 2,725 crore in Q4FY20.
The average savings deposits with the bank grew by 27 percent to Rs 108,812 crore for FY21 compared to Rs 85,656 crore for FY20. Average Current Account deposits grew by 17 percent to Rs 39,481 crore for FY21 compared to Rs 33,699 crore for FY20.
Advances were Rs 223,689 crore in Q4FY21, 4.5 percent quarter-on-quarter (QoQ) rise from Rs 214,103 crore in December quarter. Customer assets, which includes advances and credit substitutes, were Rs 238,857 crore as of March 31, up 4.4 percent against Rs 228,809 crore in Q3FY21.
Kotak said succession planning has to be a continuous process for any company, adding that the bank’s board is fully aware of its responsibilities and will act appropriately.
Kotak Mahindra Bank Q4 profit jumps 33% to Rs 1,682.4 crore, provisions remain high
On COVID impact on the banking business, Kotak said the bank will be cautious to the COVID situation and will look at restructuring proposals as and when necessary. Kotak said the bank has advised its employees not to venture out unless it is absolutely necessary in view of the COVID spread.
New RBI norms
Issuing the latest rules, the RBI said the post of the MD&CEO or WTD (whole time directors) cannot be held by the same incumbent for more than 15 years in the case of a non-promoter individual.
The RBI said after the 15-year term, the CEO will be eligible for reappointment in the same bank, if considered necessary and desirable by the board, after a minimum gap of three years, subject to meeting other conditions. During this three-year cooling period, the individual shall not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly.
In the case of promoter CEOs, at the sole discretion of the Reserve Bank, such MD&CEO or WTDs may be allowed to continue up to 15 years. While examining the matter of re-appointment of such MD&CEOs or WTDs within the 12/15 years period, the level of progress and adherence to the milestones for dilution of promoters’ shareholding in the bank shall also be factored in by the Reserve Bank, the RBI said.
The RBI also clarified that no person can continue as MD&CEO or WTD beyond the age of 70 years. Within the overall limit of 70 years, as part of their internal policy, individual bank's boards are free to prescribe a lower retirement age for the WTDs, including the MD&CEO, the RBI said.
Past tussles with the RBI
Earlier in 2020, Uday Kotak and RBI had a court battle over Kotak's promoter stake holding in the bank. The RBI norms stipulated that Kotak had to pare promoter stake below 20 percent before December 31, 2018 from around 30 percent. To achieve compliance, in August 2018, the bank announced the completion of perpetual noncumulative preference share issue (PNCPS), which it interpreted as cutting the promoter stake to 19.7 percent. The bank claimed it was complying with the RBI licencing norms through this deal. But here the RBI posed a question.
The regulator said preference share allotment route wasn’t sufficient to meet promoter dilution rule requirement. But the bank’s legal argument was PNCPS was part of the paid-up capital. With the impasse continuing and the deadline for stake dilution fast approaching, KMB finally decided to move the High Court of Bombay. In January last year, the RBI let KMB retain the 26 percent promoter stake with some riders.
The RBI said the promoters, Uday Kotak and family, while retaining 26 percent stake, need to cap the voting rights at 15 percent by April. KMB withdrew the case subsequently and some interpreted this as a win for Uday Kotak. In June, 2020, Kotak sold 5.6 crore shares for more than Rs 6,900 crore in a block deal, bringing down his stake to 26.1 percent, inching closer to the RBI’s stipulated level.
While this was an out-of-court settlement, some interpreted this as a win for Kotak at the end of the bitter court battle.