How Uday Kotak Built a Rs 4 Lakh Crore Business Empire from a 4% Spread

In an exclusive interaction with Arnab Goswami, the Editor-in-Chief of Republic Media Network, the Founder of the largest private lender in India, Uday Kotak gave several powerful insights on how he built his own business empire.

What Did Uday Kotak Say?

Uday Kotak, the founder of Kotak Mahindra Bank is very enthusiastic about seeing budding entrepreneurship succeed in every nook and corner of India.

On being asked, what it means to be an entrepreneur in an age when everyone wants to be a dollar billionaire, he said, "If you get money, in the initial stages, of course, you invest money and you're investing more than you're earning. But you must have a game plan to see over time what is the cash generation happening in your business."

Kotak emphasised on the importance of waiting for a few years when investing money and to go from a stage of negative cash flow to positive cash flow.

He further noted, "ultimately cash generation from business is a critical part of sustainable business."

How Did Uday Kotak Erect His Business?

Uday Kotak started small with a dream to have his own finance business, with a piece of land which his father had given to him after consulting with the joint family.

"So, originally it started as a financial advisory consulting business, converted to quickly build discounting and there was a gentleman called Mr. Sidney Pinto who actually made a big difference," Kotak said.

According to Uday Kotak, Pinto started merchant banking in India in Grindlays who had advised him to start your own bill discounting business.

 

After this Kotak started "bill discounting for a company called NELCO, which was a Tata company where Mr. Ratan Tata started his career. So NELCO suppliers had a long way to get the money because of the working capital cycles."

"So we started discounting bills for suppliers of NELCO, which is 90-day bills. And in those days, India was a closed economy. You would borrow money from a bank normally at 17%," he added.

He added that during the mid-80s people would "borrow money at 17%, and if you gave money to your bank as a fixed deposit, they would pay you 6%. so I went to some family friends and said that what if I gave you a Tata company risk and instead of 6% you made 12? And I went to Nelco and said I will give you significant amount of monies at 16 instead of 17. So send all your suppliers to us and we'll finance them at 16. So we would buy a bill of exchange at 16% and sell it to save us at 12% with a Tata name on due date."

The 4% interest that Kotak was earning from the Tata company is what he built his business on, he added.

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