How Uday Kotak built a bank on ₹30 lakh: The untold startup story behind Kotak Mahindra Bank

Marking 40 years of Kotak Mahindra Bank, Founder Uday Kotak reflects on how a 26-year-old with modest capital, a contrarian vision, and an early partnership with Anand Mahindra built one of India’s most trusted financial institutions long before the word “startup” entered the country’s business vocabulary.

In 1985, India was still a heavily regulated financial system. “Banking was 97% state-owned. Interest rates were fixed — 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 said 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 helped small businesses unlock working capital at more competitive rates. “That was the first open game that enabled us to grow in 1985–86,” he said.

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. Friends chipped in the rest. That was our starting capital,” Kotak said. “In many ways, Anand Mahindra became our first venture capitalist.”

The partnership also shaped the company’s enduring 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 move to professionalism, and many professionals lack an entrepreneurial mindset. Our belief was to blend the two,” he said.

This philosophy paved the way for bold moves 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 change. At some level, we were lucky to be at the right place at the right time,” he reflected.

Four decades later, the startup that began 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 unchanged: 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 made 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 got formalised as a structure in the financial markets. And we were on relatively small shoe string budgets. Raising capital was not easy, but there was hope and aspiration of an India on the verge of change. 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 getting this started – from NBFC to eventually getting the first bank licence for an NBFC in India. If I were to ask 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 fixed by the RBI for all borrowers at 17% and depositors got around 6%. So, here was a marketplace where small borrowers, small 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 said let us give it to the consumers and customers and built this business. So, we started giving bill financing to SME and small business customers at 16% who used 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 made it competitive at 12% to 16% and funded a lot of small and medium businesses who had problems of cash flow supplying to large buyers. 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 get 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 ended 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 friends 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 said 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.Read about our editorial guidelines and ethics policy