Cricketer to the Richest Banker

India has a population of roughly 140 crores. Out of that, I can surely bet that at least 100 crore of them have dreamt of becoming cricketers and representing India. Even if your talent were exceptional, the odds have and will always be against you. To an extent, it is believable that you became a cricketer and represented the country. But the possibility of someone being an exceptional left-arm bowler and a right-arm batsman while simultaneously running one of the biggest private sector banks in India is far-fetched. Having a population of 140 crores, this country is great at producing diamonds out of dust, and Mr. Uday Kotak is a Kohi-Noor.

That's right. A boy who started his career as a cricketer ended up creating one of India's most successful and profitable banks, the Kotak Mahindra Bank, and also getting himself on the Forbes list of the most powerful bankers in the world. Mr. Kotak ran the bank for 18 long years and stepped down from his position on September 1, 2023. How did Mr. Kotak end up with a massive fortune of $16 billion? You are about to find out.

In his early days, like every Indian kid, Mr. Kotak developed an interest in cricket. His family was involved in a cotton trading business, like any other family back then, and hence, he was able to afford the required coaching. Any guesses who taught his? It was a person who made an ordinary kid the god of cricket. That's right. It was Mr. Ramakant Achrekar. He becomes a left-hand spinner and a right-hand batsman. His entire focus was on representing India in the field of cricket, but little did he know that destiny had something else already planned for him. If you had invested Rs 1 lakh in Kotak Mahindra Bank way back in 1985 until the time he stepped down as a founder and CEO, that Rs 1 lakh would have grown to Rs 2600 crore. That's including compounding, splits, bonuses, and dividends. Markets reward the patient and disciplined players only. Mr. Kotak also played a key role in the ILFS crisis. EY has also awarded Mr. Kotak Entrepreneur of the Year 2016. He was the only Indian banker to have been nominated for the Forbes list of the most powerful bankers in the world.

In 2003, Kotak NBFC was the only NBFC to have received a banking license. Let's get back to 1959, when his family migrated to India because of partition. As a matter of fact, there were 60 members living under a roof. That's like watching Hum Sath Sath Hai, Hum Apke Hai Kon, and K3G in one frame. No one would have even thought that Mr. Kotak would become what he is today. As some yogis said, "It only takes one person to change the life of the entire family." This is not the typical rags-to-riches story. He himself has quoted this many times, saying that his family was well to do. Moving on, Mr. Kotak completed his B.COM. degree from the prestigious Sydenham College, which hosted alumni like Mr. Kumar Mangalam Birla. Doing a BCOM degree doesn't sound that bad now, does it? Later, he went on to complete his post-graduation from JBIMS. For anyone to get into JBIMS, he or she needs to get more than 96% in CAT. This proves his brilliance.

When asked about his first love, Mr. Kotak replied with cricket, sitar, and math and numbers. In the end, he had to settle with his third love. Passion can remain passion itself. You don't need to monetize your passion and that's what Mr. Kotak did. His first love was cricket, but he ended up running a bank. So, if you are not able to monetize your passion, think about Mr. Kotak. His life had a complete turnaround when he was hit by a ball on his head while playing for his club. Mr. Kotak ended up being in the hospital for more than a year, recovering and fighting. While lying on the hospital bed, he decided to give-up his first love and pursue his third love, numbers. 

After completing his post-graduation, Mr. Kotak got an offer from HUL. Just so you know, getting a job offer from HUL in the 80's and 90's was as difficult as finding logic in Bollywood movies. Because of his aspirations, Mr. Kotak denied the job and convinced his family that he wanted to get into business. As mentioned earlier, his family was already involved in the cotton trading business. But he wanted to do something different. His father gave him a 300-square-foot office, and that's where Mr. Kotak started Kotak Consulting Pvt. Ltd. Every business needs capital, and hence his family gave him ~Rs 30 lakh. Apart from this, Mr. Kotak also borrowed Rs 1 lakh from an old friend who became a silent partner. Moving forward, Mr. Kotak started his first venture, which was bill discounting.

Let's say Reliance manufactures mobile phones on a contractual basis. I gave Reliance an order to manufacture 100,000 phones, which sums up to Rs 10 crore. I'll pay this Rs 10 crore to Reliance after 30 days. But what if Reliance needs that cash right now? In this case, Reliance will approach a NBFC and ask them to make a payment of, say, Rs 9.5 crore and submit the bill to that NBFC. I will pay that Rs 10 crore to the NBFC after 30 days. In this way, Reliance got the liquidity they needed, the NBFC got a discount, and I got 30 working days to square off my transaction. A classic win-win situation. 

Mr. Kotak charged a commission and started this business. In the mid-1990s, he observed that banks were minting money. Banks were raising money at 6% and lending that money at 17%. 11% profit. Interestingly, banks were very liberal back then. They followed the principle of one rating for everyone. Nelco was one such victim of the 17% interest rate. A friend of Mr. Kotak who was working at Nelco accidentally talked about the magic it would create if their borrowing costs went down. He promised to pay 12% on deposits, and on the other hand, he promised big corporations like Nelco to provide capital at 16%. Even a 1% reduction in borrowing costs can save thousands of crores. Nelco accepted the offer, and he started making 4% in profits, or what the banks call net interest income. This skyrocketed his NBFC business.

His next breakthrough came when he entered the auto financing business. He found that Citi Bank dominated the auto loan segment and was acting like a monopoly. They were offering loans at 28%. Mr. Kotak found out that there was a lot of disappointment in the market. People were willing to buy a car, but their ability to pay was restricting them. He came up with a gamble that I believe hasn't been played by anyone in the business till date. He went out and booked 5,000 Maruti cars in advance. The only kick here was that if you wanted a Maruti, you needed to take a loan from Kotak Bank at 13%. It was like a Black Friday sale for borrowers. Citibank wasn't ready for something like this. One should always be prepared for downfalls, especially when you are at the top.

Post-1990, these spreads started declining because of an increase in competition. He understood that this business model wouldn't last long. The 1990s were a very exciting era. Post-LPG, there was a bubble forming in the markets. The West calls it the Y2K boom. The inflows into the Indian stock markets were rising. Looking at this scenario, Mr. Kotak came up with another money-mining idea, Kotak AMC. He launched his mutual funds under the Kotak brand name. Mutual fund markets in the 90s were ruled by three K's: Hemandra Kothari of DSP, Nimesh Kempani of Morgan Stanley India, and Mr. Uday Kotak. 99% of the companies that were raising money through an IPO were assisted by one of these institutions. 

India experienced a sudden rise in the number of NBFCs in the 2000s. At the peak, there were 6,000 NBFCs registered, and post-crash, there were only 25 left. It's only when the metal is hot that a blacksmith's hammer can mold it into the desired shape. The markets were sensitive, and the regulators were scrutinizing them rigorously before giving out any licenses.

On March 23, 2003, Mr. Kotak played his last masterstroke and got the banking license. Only two banks were given licenses, and Kotak was one of them. Another was Yes Bank. Mr. Kotak believed in collaborations, and hence he went on and collaborated with INS Vyasa, worth $2.4 billion. He partnered with Mr. Sunil Mittal for general insurance. Kotak Mahindra Bank, the parent company of every business that runs under the Kotak name, is valued at Rs 3,44,977 crore. That's roughly $42 billion.

Miracles do happen, and Mr. Kotak getting hit by a ball was one such miracle. It obviously didn't look like one when it actually happened. Similarly, we might face hardships today, but what if those hardships turn out to be the miracle we needed? Mr. Kotak is an inspiration to millions. Turning adversities into a life-changing opportunity is what differentiates a visionary from a good businessman. He is now the executive chairman, and his son, Jay Kotak, actively manages the business. He sits on various boards and consults the RBI as well. Uday in Hindi means "rise," and his career is nothing short of his name.

Regarding the person he borrowed Rs 1 lakh from while forming his initial business, did you figure out who he was? Let me give you a hint. Kotak Mahindra Bank

Yes, it was none other than Mr. Anand Mahindra. He was his classmate.
Birds of a feather flock together.