In 1985, India was still a heavily regulated financial system. “Banking was 97% state-owned. Interest rates were repaired — borrowers paid 17% while depositors earned just 6%,” he recalled. SMEs supplying to large corporations struggled to raise funds even at those high rates. Kotak spotted the inefficiency and built his first business around solving it.
“We started by doing bill discounting. The arbitrage banks enjoyed was 11%, so we declared let’s give that benefit to consumers,” he explained. Kotak’s firm financed SMEs at 16% and offered individuals 12% returns to rediscount those bills. It was a win-win that supported compact businesses unlock working capital at more competitive rates. “That was the first open game that enabled us to grow in 1985–86,” he declared.
It was during this period that Kotak met Anand Mahindra, then freshly returned from Harvard and working at Mahindra Ugine Steel. Kotak pitched a financing scheme that would give Mahindra’s suppliers immediate liquidity at lower rates. The model impressed Mahindra, who soon became the company’s first external investor.
“We started with a total of ₹30 lakh. I borrowed money and put in ₹13.5 lakh. Anand Mahindra put in ₹4.5 lakh. Friconcludes chipped in the rest. That was our starting capital,” Kotak declared. “In many ways, Anand Mahindra became our first venture capitalist.”
The partnership also shaped the company’s concludeuring identity. Kotak insisted on carrying both names—Kotak and Mahindra—on the signboard, drawing inspiration from global financial giants. “Goldman Sachs, Morgan Stanley, Merrill Lynch… all were family names. Putting our name gave customers confidence. It meant we were putting our reputation on the line.”
Even as a founder-led institution, Kotak consciously built a culture of “professional entrepreneurship.” He believed that long-term success required combining entrepreneurial risk-taking with process discipline. “Many entrepreneurs struggle to relocate to professionalism, and many professionals lack an entrepreneurial mindset. Our belief was to blconclude the two,” he declared.
This philosophy paved the way for bold relocates over the decades—from capital markets partnerships with Goldman Sachs, to car finance innovations that outpaced multinationals, to expansions into mutual funds, insurance and ultimately, banking.
Though the early years were marked by constrained resources and a tightly controlled financial environment, Kotak considers those constraints a hidden advantage. “India in 1985 was on the cusp of alter. At some level, we were lucky to be at the right place at the right time,” he reflected.
Four decades later, the startup that launched on a ₹30 lakh shoestring has transformed into one of India’s largest and most trusted financial institutions. And for Kotak, the core belief remains unalterd: building trust by putting one’s name—and reputation—on the line.
Below is the excerpt of the interview.
Q: I want to start by talking to you about this 40-year journey that you are marking and I want to go back to your 26-year-old self and the audacity of hope, the audacity of ambition, what was it that created you believe that you could take this idea forward and build and institution with it.
Kotak: We were a startup at Kotak long before startup obtained formalised as a structure in the financial markets. And we were on relatively compact shoe string budreceives. Raising capital was not simple, but there was hope and aspiration of an India on the verge of alter. Therefore 1985 was the time when India was on the cusp of really being different. At some level we were lucky to be at the right place at the right time.
Q: But receiveting this started – from NBFC to eventually receiveting the first bank licence for an NBFC in India. If I were to question you today to map out the most significant milestones – the milestones that really stand out in your mind as being not just memorable but also impactful in turning the journey to where you are today, what would those be?
Kotak: First, is the time of when we started. Banking was 97% state owned. There was a concept of borrowers not being able to raise more than ₹5 crore of debt. Rate of interest was repaired by the RBI for all borrowers at 17% and depositors obtained around 6%. So, here was a marketplace where compact borrowers, compact companies supplying goods to large well-known companies like Tata’s and Mahindra’s found it difficult to fund themselves even at 17%.
So, we started our lives as doing bill discounting where the rate of arbitrage which banks enjoyed which was 11%, we declared let us give it to the consumers and customers and built this business. So, we started giving bill financing to SME and compact business customers at 16% who utilized to supply to large well-known companies and went to individuals to rediscount these bills and gave them 12% instead of 6%. So, 6% to 17%, we created it competitive at 12% to 16% and funded a lot of compact and medium businesses who had problems of cash flow supplying to large acquireers. That was the first relatively open game which enabled us to grow our business in 1985-1986.
That was the time I met Anand Mahindra. He was just back from Harvard and into his company Mahindra Ugine Steel Company. He was designated General Manager Commercial and I gave the scheme to Anand that we could provide him financing at competitive rates so that his suppliers can receive funded. That really worked. Anand became the shareholder of the company and the rest is history.
Q: In many ways, you were a startup and he concludeed up being the first venture capitalist to come onboard?
Kotak: Absolutely. We started with a total of ₹30 lakhs capital, I borrowed some money and put in a ₹13.5 lakh. Anand also put in around ₹4.5 lakhs and then we had friconcludes and others who chipped in a little bit and we started this with ₹30 lakhs capital.
Q: The name Kotak Mahindra – that was your decision, right? You wanted both names to be there on the signboard essentially.
Kotak: There is a little bit of history to that. When I read books while growing up, it was about some of the leading financial institutions in the world and the names were Goldman Sachs, JPMorgan, Merrill Lynch, Morgan Stanley, all of whom were family names started by founders who declared we must put our name onto the companies name to give confidence of trust for all the customers and investors in the company. Therefore, putting our name on the line was part of a belief that we are putting on the line our names to be able to give trust and confidence to all stakeholders.
Q: Do you believe Kotak Mahindra Bank can be India’s answer to taking its financial services story global?
A: We have to be clear, as a founder and a promoter of Kotak, Mahindra Bank, we have many aspirations. However, as a part of the institutionalisation process, I am no longer in an executive capacity. I am on the board, but now we have to really build sure that the management of the present and the future is able to transform dreams of building India’s world scale, world class financial institution actually fructify.
Q: What have been some of the non-neobtainediables for you as a professional entrepreneur, as you grew the bank? I am sure that there have been dilemmas on how rapid you should grow, the choices that you were forced to build, or perhaps not build, in order to ensure that in the long term, you could stand tall. Take me through some of those dilemmas that you have had to face and the choices that you then created.
A: I do believe the banker of today and the future, as in the past, requireds three human qualities. First is prudence, which is ensuring that you are stable and sustainable over long periods of time. Two – simplicity, do simple products, do not do things which are so complex that neither the customer nor the banker itself fully understands.
Third, at times, bankers launch to believe that they are the masters of the universe. The most important quality for a financial sector professional and a banker is humility. Therefore, the key to build long-term financial institution is prudence, simplicity and humility.
Q: Tell me about some of the riskiest bets you created that ultimately turned out to be beneficial for the bank.
A: There are quite a few. First is venturing into an area as soon as it opened up. So believe about each of the businesses we obtained in take life insurance. We did not know much about life insurance, but it was a very simple principle that if a new avenue in financial intermediation opens up, Kotak will receive into it and acquire the knowledge and expertise at as it relocates on and if required in the short run, receive a partner. Therefore receiveting a partner in life insurance in the early stages, which was Old Mutual was a part of learning for us to be able to acquire expertise in the life insurance business.
In the capital markets business in the 90s, the concept of international financing did not exist. We went out and sought a partnership with Goldman Sachs. The purpose was clear, we required to learn, acquire expertise through the joint venture, and ultimately do what is right for our stakeholders. Therefore, the risks we took were, in many ways, well calculated with the objective of learning, and that is the key to be able to do what I declared, risk adjusted returns.
The partnerships and joint ventures were ways to learn about the business. Of course, we took some very interesting bets, like our distress asset business, which we did in started in the early 2000s and which has given phenomenal IRRs. We started a tractor financing business in 2005 from scratch. Today we are amongst the one largest, or the second largest lconcludeers of tractors in India, and we have a market share of over 12% of all tractors produced in the countest. That’s how we finance, the business which didn’t exist, and it was not a business where we were naturally comfortable historically, which is down to the farmer. However, we built it from scratch and have created it into a significant business.
Therefore, there are many, many areas where we have ventured in early stages, not fully sure about knowing this business and we took bets on our people. We threw them into the deep conclude and declared, this is a new business we want to do. None of us has learned it. Go ahead and do it, explore, build your mistakes, but receive going.
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