Kotak Mahindra Bank to Withdraw Case Against RBI, to Pare Promoter Stake to 26 Percent in Six Months

Mumbai: In a surprise announcement, Kotak Mahindra Bank (KMB) on Thursday said it will withdraw a case against the Reserve Bank of India after a climbdown from the central bank on promoter shareholding caps.

Acting on suggestions from the private sector lender promoted by billionaire Uday Kotak, the Reserve Bank of India (RBI) had on Wednesday agreed to cap the promoter shareholding at 26 per cent of the paid-up voting equity share capital (PUVESC), the bank told stock exchanges.

Under previous governor Urjit Patel, the RBI had insisted that KMB promoters, who currently own nearly 30 per cent stake in the bank, to bring down their holding to 20 per cent by December 2018 and 15 per cent by March 2020. KMB had filed a writ against the RBI on December 10, 2018, on the matter in the Bombay High Court.

The high court had adjourned the matter in April 2019 till January 2020 and pushed it to March 6 at the last hearing. In the interim order, the RBI had fined KMB Rs 2 crore for violation of its norms.

In August 2016, KMB promoters had tried to decrease its holding to a complex instrument, which had been rejected.

KMB on Thursday said it had made certain proposals to the RBI on August 19 last year and January 10 this year on the issue of promoter shareholding dilution and the RBI reverted back on Wednesday with its "in-principle acceptance" for a few suggestions.

The promoters will get six months from the date of final approval for the proposal to reduce their holding to 26 per cent, the bank said.

As per Thursday's closing price of Rs 1,628.10 apiece on the BSE, the value of the 3.96 per cent stake to be diluted would be around Rs 12,320 crore.

The suggestions accepted include capping promoters' voting rights at 20 per cent of the PUVESC till March 31, and decreasing the same to 15 per cent from April 1 onward, disallowing promoters from buying any paid-up equity shares till their holding reaches 15 per cent and capping the purchases in such a way that the holding does not breach 15 per cent.

"Our board of directors has resolved to abide by the above. The bank is withdrawing Writ Petition No. 3542 of 2018 filed by it in the Hon'ble High Court of Bombay," KMB said.

The RBI has been otherwise strict on making regulated entities comply with promoter shareholding, and had even imposed severe restrictions including curbs on KMB's smaller rival Bandhan Bank on its expansion activities on similar grounds.

The announcement from the bank comes even as bankers, including SBI Chairman Rajnish Kumar, have been publicly suggesting KMB to take over capital-starved rival Yes Bank. Such a deal can help reduce the promoter holding in KMB, as had last happened with the merger with ING Vysya Bank. Both KMB and Yes Bank have denied the speculation of any deal being in the works.

KMB's healthy performance has ensured handsome valuations being enjoyed by the bank, which, while being a soothing news for investors, turns into a difficulty from a promoter shareholding perspective.

There have also been talks of a merger with a much bigger private sector lender, and also that of billionaire investor Warren Buffet entering the bank in the past, which have not come true.

Uday Kotak, who had in late-2018 accepted the government's proposal to serve as the chief troubleshooter to help infrastructure lender IL&FS get out of the difficulties, had earlier this month said 2020 will be a year of consolidation for the sector.

"It is a great opportunity for Kotak to grow in an environment which is consolidating," he had said in a new year message to group employees.

Kotak Mahindra Bank's shares fell 0.80 per cent to close at Rs 1,628.10 per share on the BSE, in line with the 0.69 per cent correction on the benchmark Sensex. It has gained over 35 per cent since December 10, 2018, when the bank had filed the case.