Specialist in Indian Banking and Economic Research

Hemindra Hazari

Is a Securities & Exchange Board of India (SEBI) registered research analyst with over 25 years experience in the Indian capital markets with a specialization in banking and economy research and has managerial experience of establishing profitable equities business, leading and mentoring analysts.  He has worked with prominent foreign and domestic capital market firms such as UBS, Societe Generale, HSBC, ASK Raymond James  and Karvy Stock  Broking and is a regular guest on business media channels and is respected for his non-consensus view on stocks and the market.

Why Did the RBI Drop Its Own Proposal Safeguarding the Independence of the Internal Audit in Banks?

Kotak Mahindra Bank – Credit Falling Off Of A Cliff

Kotak Mahindra Bank – Failing To Answer The Hard Questions

Defy Regulator, Win $3.3 Bn: Kotak Laughs All the Way to the Bank

RBI Caps Kotak at 26%, Indusind Bank at 15%: Sauce for the Goose Is Not Sauce for the Gander

Gravity Works As WeWork Doesn't; Now Plan B

The Reserve Bank of India (RBI) has decided to <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/d5faa2b3-1886-42a9-af9d-960ff207a4ce.pdf" target="_blank" rel="noopener">approve</a> extensions for Uday Kotak, the founder-CEO and Dipak Gupta, joint managing director (JTD), <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a> (KMB), for a further 3 years. This takes the CEO’s tenure to 20 years, despite the regulator’s earlier <a href="https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/DISCUSSION08CA382F39604B10B420A8A43B0DB0C1.PDF" target="_blank" rel="noopener">proposal</a>  to limit the tenure of the founder-CEO to 10 years. This is the latest instalment of the <a href="https://thewire.in/banking/rbi-kotak-mahindra-bank-promoter-shareholding" target="_blank" rel="noopener">tale</a> of a 17-year old KMB instructing the 85-year old RBI on regulation. The saga is one of the RBI giving a long rope to KMB for reducing the founder’s stake, a relaxation not provided to other private sector banks; when the regulator finally insisted on compliance and <a href="https://hemindrahazari.com/2019/04/25/wilful-mala-fide-rbis-scathing-language-has-kotak-mahindra-bank-in-trouble/" target="_blank" rel="noopener">accused</a> the bank of “wilful non-disclosure of information” (which is a criminal offence under the Banking Regulation Act, 1949), KMB filed a case against the RBI and called its <a href="https://hemindrahazari.com/2019/03/20/rbi-says-kotak-tried-to-take-it-for-a-ride-shareholders-should-expect-the-consequences/" target="_blank" rel="noopener">action</a>, “wholly illegal, without the authority of law and unconstitutional.” Such language used by a regulated entity to describe the conduct of the regulator revealed its disdain for the RBI and its cavalier attitude towards regulation. The RBI’s decision in January 2020 to <a href="https://hemindrahazari.com/2020/02/17/defy-regulator-win-3-3-bn-kotak-laughs-all-the-way-to-the-bank/" target="_blank" rel="noopener">settle</a>  the case out of court on terms favourable to Uday Kotak, without any public explanation, undermined the regulator’s credibility. However, in June 2020, the RBI <a href="https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/DISCUSSION08CA382F39604B10B420A8A43B0DB0C1.PDF" target="_blank" rel="noopener">proposed</a>, in a discussion paper on corporate governance in private sector banks, to cap the tenure of founder-CEOs to 10 years and whole time directors (WTD) to 15 years. Some in the capital market, such as this analyst, felt that finally RBI was serious in prudently separating management from ownership in private sector banks and curtailing the influence of Uday Kotak, who remained as CEO when KMB received its banking license in 2003. When the banking regulator in a court document not only <a href="https://hemindrahazari.com/2019/03/20/rbi-says-kotak-tried-to-take-it-for-a-ride-shareholders-should-expect-the-consequences/" target="_blank" rel="noopener">accuses</a> a bank of blatantly lying, of having dishonest intent, taking the regulator “for a ride” but also disrupting and undermining the regulatory systems of the regulator, it amounts to saying that the regulator believes that the bank under the existing management is a threat to the financial system.The RBI’s approval to provide Uday Kotak with a further 3-year tenure as CEO is a public demonstration of how a private sector bank can effectively dictate its own terms to the banking regulator. The Indian public, its parliament, investors and global credit rating agencies should take note of RBI’s conduct. When the RBI is incapable of enforcing its writ on an apparently influential individual private sector banker and his bank, how will it be able to regulate powerful industrial houses if they were to be <a href="https://hemindrahazari.com/2020/11/23/rbis-working-group-recommends-foxes-be-put-in-charge-of-chicken-coops-cites-foxes-experience-management-expertise-and-strategic-direction/" target="_blank" rel="noopener">allowed</a>  to set up banks?

The Reserve Bank of India (RBI) has decided to approve extensions for Uday Kotak, the founder-CEO and Dipak Gupta, joint managing director (JTD), Kotak Mahindra Bank (KMB IN) (KMB), for a further 3 years. This takes the CEO’s tenure to 20 years, despite the regulator’s earlier proposal  to limit the tenure of the founder-CEO to 10 years. This is the latest instalment of the tale of a 17-year old KMB instructing the 85-year old RBI on regulation. The saga is one of the RBI giving a long rope to KMB for reducing the founder’s stake, a relaxation not provided to other private sector banks; when the regulator finally insisted on compliance and accused the bank of “wilful non-disclosure of information” (which is a criminal offence under the Banking Regulation Act, 1949), KMB filed a case against the RBI and called its action, “wholly illegal, without the authority of law and unconstitutional.” Such language used by a regulated entity to describe the conduct of the regulator revealed its disdain for the RBI and its cavalier attitude towards regulation. The RBI’s decision in January 2020 to settle  the case out of court on terms favourable to Uday Kotak, without any public explanation, undermined the regulator’s credibility. However, in June 2020, the RBI proposed, in a discussion paper on corporate governance in private sector banks, to cap the tenure of founder-CEOs to 10 years and whole time directors (WTD) to 15 years. Some in the capital market, such as this analyst, felt that finally RBI was serious in prudently separating management from ownership in private sector banks and curtailing the influence of Uday Kotak, who remained as CEO when KMB received its banking license in 2003. When the banking regulator in a court document not only accuses a bank of blatantly lying, of having dishonest intent, taking the regulator “for a ride” but also disrupting and undermining the regulatory systems of the regulator, it amounts to saying that the regulator believes that the bank under the existing management is a threat to the financial system.The RBI’s approval to provide Uday Kotak with a further 3-year tenure as CEO is a public demonstration of how a private sector bank can effectively dictate its own terms to the banking regulator. The Indian public, its parliament, investors and global credit rating agencies should take note of RBI’s conduct. When the RBI is incapable of enforcing its writ on an apparently influential individual private sector banker and his bank, how will it be able to regulate powerful industrial houses if they were to be allowed  to set up banks?   

RBI Abides by Latest Guidelines from Kotak Mahindra Bank, Extends CEO’s Tenure to 20 Years