Time is running out for Kotak Mahindra Bank and its high profile billionaire chairman Uday Kotak to comply with an RBI stricture to cut promoter stake.
India's fourth largest private lender has a December 31 deadline to cut promoter holding to 20 percent from the current 30 percent. Under the RBI's guidance, the bank should further cut Uday Kotak's stake to 15 percent by March 2020.
Earlier this month, the bank had sued the Reserve Bank of India (RBI) after it prevented Uday Kotak from diluting his equity stake in the bank using preference shares.
With the promoters refusing to yield the bank is running the risk of coming under RBI action similar to what Bandhan Bank underwent in September. Shares in Bandhan Bank tanked as much as 20 percent in a single after the RBI stopped it from opening new branches without prior approval and froze executive pay. The action was taken after the bank failed to cut promoter holding as per RBI's banking licence guidelines.
Kotak's non-compliance could expose minority shareholders to the risk of regulatory punishment, the Hindu Business Line reported, citing legal experts.
Meanwhile, Kotak officials stuck to the stand that the bank's equity structure complies with regulatory guidance. "The bank believes it is compliant with RBI's promoter dilution communication. The RBI has not accepted the bank's contention. The matter is sub-judice, hence the bank cannot offer any comments on this," Rohit Rao, Chief Communication Officer of Kotak Mahindra Bank, tol Business Line.
Uday Kotak had attempted to cut his holding by using preference shares rather than common equity in August. However, the RBI cut down the move saying the bank could not take the Perpetual Non Convertible Preference Shares (PNCPS) route to pare promoter holding.
The bank said earlier this month it was moving the high court as the RBI did not respond to its request to reconsider its decision on preference shares. "Given the milestone of December 31, 2018, the Bank has been left with no option but to protect its interest. By way of abundant caution, the Bank has today filed a writ petition with the Hon'ble Bombay High Court to validate the Bank's position," the bank said.
"It is unprecedented for Kotak Bank to sue RBI. On earlier occasions, the promoter complied with the norms but the current situation leaves minority shareholders unnecessarily exposed to regulatory punishments/restrictions on Kotak Bank for no fault of theirs," Anil Singhvi, ICAN Investments Advisors Chairman, told the financial daily.