Finance and Economics；Indian banking;Kotak moment;

At last, a bank that didn't fall victim to Goldman envy;

In 1993 two Goldman Sachs partners, Jon Corzine and Hank Paulson, who both later ran the bank, were hosting a dinner in Hong Kong and needed a guest who could talk about India. They invited a relative unknown, Uday Kotak, whose firm financed cars and discounted bills there. Three years later the two firms formed an Indian investment-banking joint venture.

In March of this year Goldman's board met in India for the first time. Invited to the shindig were the big beasts of India Inc. Among them was Mr Kotak, now boss of a leading bank and a multibillionaire. “My objective is to build something sustainable that lasts 100 years,” says Mr Kotak, who is upbeat without being hyperbolic, not a trick all Indian tycoons manage.

Kotak Mahindra Group's rise mirrors that of India. The bank was born in 1985, and although it thrived in the insular India of that time it was quick to seek foreign expertise as the economy opened up after 1991. As well as befriending Goldman, it also struck a car-financing pact with Ford. Kotak bought out the partners in both these ventures in 2005-06 as the India boom took off. By that point its investment bank had become a powerhouse capable of taking on the bulge-bracket firms (indeed, Goldman has never hit its stride in India since the venture ended). By March 2007, before the global crisis struck, investment banking made up 60% of earnings.

There has been a startling change of colours since then. Kotak correctly judged that India's investment-banking scene would slump as too many firms chased a smallish and shrinking revenue pot. And it chose not to go global. Although some emerging-market firms, such as BTG Pactual of Brazil, harbour such ambitions, Kotak lacked muscle and in any case, says Mr Kotak, “the jury is still out” on the Anglo-Saxon style of capital-markets-led banking. Instead Kotak focused on India and on lending. In the year to March 2012, four-fifths of pre-tax profits came from lending. Profits have more than tripled since 2007.

The shift was not all luck, the bank says. Its roots are in small-ticket lending to middle India, not supping with too-big-to-fail types. The firm's co-managing directors, C. Jayaram and Dipak Gupta, have both spent two decades at the bank and predate the investment-banking adventure. Retail loans are mainly collateralised, and used to finance purchases of cars and houses. Wholesale loans are aimed at semi-rural bits of India and skewed towards purchases of vehicles and equipment. Kotak has shied away from the big infrastructure projects that are hurting other banks. Gross bad debts and restructured loans are a low 1.2% of the total, despite fast growth.

As well as a weak economy, there are potential sources of disruption. New banking licences may be awarded to politically connected industrialists. And Indian banking is due for a bout of consolidation. Both events may be a year or two away, but will still probably come under the watch of Mr Kotak, who owns 41% of the firm. At 53 he has no plans to retire, and wants his family to retain a chunky stake in the long term. That may be no bad thing. Continuity is part of the magic formula. And, unlike some well-known Wall Street firms, there is little sign of hubris. “All of us have middle-class values,” says Mr Kotak. “We never wanted to be grandiose.”