The 26-Year-Old Who Asked Mahindra for his Name: Uday Kotak

In a world where most people take the easy path, Uday Kotak chose the road less traveled. Despite being born into a privileged family with a thriving business in clothing and textiles, Uday decided to follow a different path, guided by his sharp business acumen and keen interest in finance. His story is not just about a career choice; it's about making bold decisions, redefining success, and creating a legacy that would surpass even the family business.

After completing his MBA from JBIMS, Mumbai, in 1982, Uday Kotak faced a crossroads that many might envy: prestigious job offers from HUL and BCG (US), the security of joining an established family business, and a keen interest in finance that he discovered during his MBA. However, Uday was determined not to join the family business, as he did not want to become just another hand in a company already run by 14 of his family members; instead, he wanted to create something of his own in the world of finance, which was still new to him. With his father, Suresh Kotak, supporting his decision, the family firm, Kotak & Co., set up a separate division called Kotak Capital that same year, marking the beginning of his journey into the financial sector.

Spotting Opportunities

Uday’s entry into finance wasn’t just about starting a business; it was about spotting opportunities where others saw limitations.

A key moment came when his friend, who worked for a Tata group company, Nelco (where Ratan Tata had started his career), reached out to him for help in raising funds. At that time, the Credit Authorization Scheme (CAS) limited large companies like Nelco from borrowing more than ₹5 crore from banks, which charged 17% interest. Nelco asked Uday to arrange funds at this rate for a 90-day period. With FD interest rates at 6% p.a., Uday convinced people to invest at 12% p.a. (offering double the returns) by leveraging the Tata name. People agreed to invest small amounts, and Uday earned 5% on the capital. This successful venture led to the formation of Kotak Capital Management Finance Ltd. on November 21, 1985.

It was through this business that he met Anand Mahindra in 1985. Anand had just joined Mahindra Ugine Steel after completing his MBA from Harvard, and steel was always in need of working capital. Uday helped Anand raise funds, marking the beginning of their friendship.

Asking Mahindra for the “Mahindra” Name

Uday had always admired Western financial companies like JP Morgan and Goldman Sachs for using their family names as symbols of trust. Later that year, when Uday decided to venture into the NBFC sector, he recognized that banking is a business of reputation and that Kotak was still a relatively new name.

Therefore, he reached out to his friend Anand Mahindra and asked him to associate the Mahindra name with his own in the new venture.

“Let’s put our names into the company. All the great financial houses—the Morgans, the Rothschilds, and others—are known by the names of their founders. Let’s show people that we care enough about this business to put our names on it.”

Anand agreed, and that’s how Uday's company, Kotak Capital Management Finance Ltd., was renamed Kotak Mahindra Finance Ltd. (KMFL) in April 1986. In fact, when Uday needed ₹30 lakhs to start his own NBFC, Anand invested ₹4 lakhs himself, while the rest of the capital was arranged by Uday and his family and friends.

By the way, if you had invested ₹1 lakh at the time, your original investment would be worth over ₹2,160 crores (at ₹1,800 per share) today! With this, Uday also invited Anand's father, Harish Mahindra, to join the company as chairman.

But how can one capture the success of this fateful decision made 35 years ago by a 26-year-old from a business family who chose to forge his own path? It was nothing less than Uday’s visionary decision, setting the stage for a financial institution that would go on to reshape the Indian financial landscape.

Taking on Citibank

In 1989, Citibank ventured into car financing in India, becoming the first bank to offer car loans in the country. They set a flat interest rate of 13%, which meant they charged 13% on the original loan amount for the entire term, even as repayments were made. This approach allowed Citi to earn up to 36% in total from these loans due to the way interest was calculated.

Seeing this opportunity, Uday and KMFL decided to enter the market. As a non-banking financial company (NBFC), KMFL borrowed funds from banks to lend to customers, using vehicles as collateral. The challenge was clear: how could they compete with Citibank, a prestigious foreign bank?

Uday and his team came up with a smart strategy. With Maruti cars in high demand and with long waiting periods for delivery, KMFL began booking cars in bulk—between 5,000 and 10,000 at a time. This allowed them to offer instant delivery to customers. Instead of charging the extra premium typically associated with high-demand cars, KMFL sold them at the standard price but required customers to finance their purchase through KMFL. By matching Citibank’s interest rate of 13%, they made their offer highly attractive. This strategy not only enabled KMFL to compete effectively but also established them as a formidable player in the car financing market. Uday’s innovative thinking skills were crucial in turning this challenge into a major opportunity for KMFL.

The Decision to Open a Bank

While KMFL diversified into many new businesses, from mutual funds to asset management to insurance, between 1990 and the 2000s, Uday’s heart was always set on the core banking business. In 2001, an opportunity arose when the RBI announced the opening up of the Indian banking sector to private sector banks by issuing new bank licenses.

Although setting up a bank was always a dream for Uday, the decision was not easy. He and his team had to confront tough questions like, “Why not focus on expanding the already existing businesses? Why shift from a highly profitable NBFC to banking, which was projected to be less profitable in the initial years?”

However, Uday believed that to become a robust and stable financial institution in India, they needed a banking platform. This conviction led to the pivotal decision of applying for a bank license. In February 2003, Kotak received RBI approval to convert the NBFC into a bank, and Kotak Mahindra Bank (KMB), a new private sector bank, was officially born, and the rest is history, as we all know.

In fact, Uday leveraged their expertise in investment and capital markets to distinguish KMB as a newcomer among established banks by adopting the tagline "Think Investments, Think Kotak."

A Visionary Leader

Uday Kotak’s journey from a privileged upbringing to building one of India’s largest private sector banks is a story of vision, resilience, and relentless pursuit of excellence. By choosing to step out of the comfort zone of his family’s business and entering the uncharted waters of finance, Uday not only created a new legacy for himself but also set new benchmarks for success in Indian banking.

References:

‍

Download PDF

UPI vs Pix: Unpacking the Similarities

ADIB - Where Innovation Meets Ethics