India’s central bank backed an outsider with little experience in the country to lead Kotak Mahindra Bank Ltd., surprising analysts and senior management and sending its stock falling.
In a rare move for an Indian lender, Kotak went outside its own ranks with the selection of Ashok Vaswani as chief executive officer. Some senior managers were shocked and disappointed, as investment banker K.V.S Manian was seen as the front runner, according to people familiar with the matter. The bank’s board submitted both names for consideration and The Reserve Bank of India, which approves all senior bank appointments, chose Vaswani.
Kotak shares fell as much as 2.7% Monday partly on concern that the move could lead to turnover among senior executives who were expecting Manian to replace the billionaire founder and former CEO Uday Kotak, who stepped down last month. The stock recouped part of the losses on Wednesday.
“We need to see how he fits into Indian banking environment, and whether there are senior management exits or any internal flux,” wrote Suresh Ganapathy, head of financial services research at Macquarie Capital.
Vaswani, whom Kotak describes as a “global Indian,” is a veteran of Barclays Plc in the UK and Citigroup Inc. in Asia-Pacific. A former president of Pagaya Technologies Ltd., a US-Israeli artificial intelligence fintech company, Vaswani will join Kotak on Jan. 1.
While some analysts were surprised at the move, India’s central bank had been nudging the bank to opt for someone outside the company to replace Kotak, Bloomberg News reported in July. With a newcomer in charge, the founder won’t be in a position to unduly influence management decisions, according to the people familiar, who asked not to be identified discussing private matters. Kotak remains on the board and is the largest shareholder of the bank.
Still, many executives at India’s fourth-largest private bank by assets were betting on Manian, a close ally of Kotak. The bank isn’t the highest paying in the industry, and top management stayed in their roles for longer because of stock options, and trust in the founder, according to the people.
“As expectation was for elevation from the bank’s senior management, this may add some uncertainty, and we will watch for signs of smooth succession,” said Jefferies analyst Prakhar Sharma, who cut his recommendation on the stock to hold from buy.
A spokesperson for Kotak Mahindra didn’t respond to a request for comment.
Vaswani, who was part of the digital transformation of Barclays’ payments system, might be just what Kotak needs, according to people who have worked with him.
“Customer and employee focus are both largely lacking in India, and I think Kotak will benefit from the hire,” said Rishi Piparaiya, who worked with Vaswani when he was CEO of Citigroup’s consumer bank in Asia-Pacific.
Banks in India have been ramping up technology investments in an attempt to improve service and attract and retain customers with new digital products. Pulling together different business lines and integrating them into a seamless platform has been challenging for lenders, which have looked beyond banking to find talent. Kotak hired Amazon.com Inc. veteran Bhavnish Lathia last year as its chief of customer experience to design and lead the technology at its consumer bank.
Kotak has dropped about 4% this year, compared with a 1% gain in the 12-member benchmark NSE Nifty Bank Index. Shares also slumped Monday after results missed analysts’ expectations. The company has a market value of 3.47 trillion rupees ($41.8 billion).
“Kotak Bank needs a fresh pair of eyes to help it on its digital transition,” according to Rakhi Prasad, investment manager at Alder Capital. “Indian banks have to shape up on their technology for better consumer experience.”
