Merger an option to cut promoter stake: Kotak Bank

Private sector lender Kotak Mahindra Bank said on Wednesday that it is still in talks with the Reserve Bank of India (RBI) over the issue of reducing promoter shareholding in the bank and one of the options before it was a merger.

The bank had issued in August 100 crore perpetual non-cumulative preference shares (PNCPS) at Rs 5 per share, coming up to Rs 500 crore in order to reduce promoter shareholding from nearly 30% to below 20%—which was the RBI’s requirement. However, the RBI rejected the bank’s method as, reportedly, the promoter group’s shareholding as a percentage of post-issue share capital was still around 30% as preference shares are not included in equity share capital.

After announcing second quarter results of the bank, joint managing director Dipak Gupta said in a press conference in Mumbai that various aspects of meeting the RBI’s requirement on promoter holding norms were being discussed and reiterated that the bank’s stand remains that the PNCPS issue was a valid method to meet the requirement. However, he added that there was no merger proposal on the table yet and that all options were being explored.

This is only one component in a long list of challenges that face the bank and the banking sector as a whole. Jaimin Bhatt, the bank’s CFO, said exposure to NBFCs is about Rs 13,000 crore, which includes Rs 1,200 crore in the bank’s own subsidiary. Investors were keeping an eye on this figure as the aftermath of the IL&FS saga has led to panic in the NBFC space with fears of a liquidity crisis looming large.

Gupta however added that 90% of the bank’s exposure in the NBFC portfolio is to AA rated and above companies. He also revealed that Kotak Mahindra has a small exposure to the IL&FS group in low double digits.

The bank’s stock fell immediately after the results were announced on Wednesday afternoon, slipping close to 2% to Rs 1,155.50 on the BSE before recovering slightly and closing at Rs 1,177.30; the Sensex closed at 34,033.96 points, 0.55% higher than the previous day’s close. Although the bank’s profit for the quarter ended September rose 15% year-on-year to Rs 1,142 crore, it missed street estimates. Analysts on average had expected a profit of Rs 1,165 crore, according to a Reuters poll.

Asset quality was stable, with gross NPA ratio improving to 2.15% from 2.47% a year ago and net NPA ratio falling to 0.81% from 1.26% last year. Bhatt said slippages for the quarter stood at Rs 420 crore as against Rs 560 crore a year ago. The bank saw a surge in other income driven by an increase in commission and fees which rose 26% YoY to Rs 1,019 crore.