A look at Kotak Mahindra Bank’s key metrics as Uday Kotak steps down

Uday Kotak has announced that he has stepped down as the Kotak Mahindra Bank managing director and chief executive officer with effect from September 1, three months ahead of the actual date of completion of his tenure. “Succession at Kotak Mahindra Bank has been foremost on my mind, since our chairman, myself and Joint MD are all required to step down by year-end. I am keen to ensure a smooth transition by sequencing these departures. I initiate this process now and step down voluntarily as CEO,” Kotak said.

Initially formulated as an NBFC, Kotak Capital Management Finance in February 2003 became the first-ever non-banking finance company to receive the RBI nod to convert into a bank. Since 2003, Kotak Mahindra Bank’s market cap has grown from Rs 945 crore to Rs 3.5 lakh crore in September.

Uday Kotak served the organisation for 38 years. Kotak Mahindra Bank has some more senior management professionals who have been associated with the institution for long. Barring the whole-time director, other key positions are held by employees who have at least 10 years of association with the lender.

While the banking vertical contributes about 77 percent to the consolidated profit after tax, there are levers of growth for the bank. Insurance, asset management, capital market, and lending related activities contribute a total of 23 percent, as per Q1FY24 official data. Lending activities contribute 10 percent, the second most after the banking business.

As per March 2023 data, Kotak Mahindra Bank’s return on equity or ROE is the lowest among Axis Bank, State Bank of India, HDFC Bank, and ICICI Bank. However, the bank has managed to improve its ROE by 200 basis points in the past four years, and analysts believe the trajectory will be sustained. One basis point is one-hundredth of a percentage point.

According to brokerage firm Jefferies, Kotak’s one-year forward adjusted P/B is the highest, suggesting that it is the most expensive stock among the six major banks in the country. However, the bank’s valuation is lower than its own 10-year historical price-to-book average of 3.84x.

While the overall loan growth has been hovering around 17-18 percent in the last couple of quarters aided by an increase in loan demand from individuals and businesses, Kotak has registered a healthy CAGR of advances of about 15 percent over the past decade.