Mumbai - Uday Kotak, who holds the distinction of being Asia's wealthiest banker, aims to secure the market's endorsement. His intentions involve maintaining his presence on the board of the $44 billion financial institution that bears his name, even after relinquishing his CEO position in December.

While making this transition, the decision of whether an internal candidate from within Kotak Mahindra Bank can take over the reins will be influenced by India's regulatory authorities. However, the recent lackluster performance of the bank's stock introduces a potential hurdle to the billionaire's seamless succession strategy.

Regardless of his board membership status and regardless of whether the new leader emerges from the internal talent pool, Kotak's influence will linger over his successor. Notably, he is the founder of the bank, holds a substantial 26% ownership stake, and will have held the helm for two decades by the time his CEO tenure concludes in December. This tenure surpasses that of Jamie Dimon at JPMorgan by two years. The bank refuted a media report last week that suggested the Reserve Bank of India is exerting any specific influence on this matter.

This matter is of considerable sensitivity. Over the years, Uday Kotak, both as an individual and through his bank, has consistently outshone expectations. When the government has grappled with intricate financial challenges, the billionaire has been its trusted confidant. Simultaneously, the Mumbai-based banking institution managed to steer clear of a widespread bad loan crisis. Since receiving its banking license in 2003, the bank's stock has delivered an impressive annualized total return of 32%. This performance has outpaced the gains achieved by larger counterparts such as HDFC Bank and ICICI Bank within the same time-frame.

However, the signals from other market indicators are somewhat mixed. Last year, sentiment took a downturn when Uday Kotak introduced his son Jay, who possessed five years of experience at the bank, as a speaker at an investor event. While promoting family members is a common practice in India's conglomerate-driven business landscape, it remains unusual within the banking sector. Furthermore, the bank's stock has fallen behind the benchmark Nifty Bank Index by nine percentage points since an April vote where an overwhelming 99% of shareholders expressed support for Kotak to continue as a non-executive director. Although multiple factors might account for this lag, it adds complexity to the Reserve Bank of India's (RBI) decision-making process.

Historically, the regulator has removed heads of private banks due to subpar management of bad loans and has revamped bank boards where succession planning was deemed inadequate. As a precautionary step, the RBI could favor an external successor for Kotak. Yet, the majority of industry leaders perceive no issue with retaining such a reliable figure. In fact, appointing an outsider as CEO to a high-performing bank might invite complications, especially considering the growing concerns about deteriorating consumer loans in India. Regardless of the course the regulators choose for Uday Kotak and his bank, securing market support would undoubtedly be beneficial for all parties involved.