After a year-long deadlock over a decade-old conflict, private lender Kotak Mahindra Bank and the Reserve Bank of India (RBI) have reached an agreement to settle their long-standing differences over promoter shareholding in the bank.
Kotak Mahindra Bank informed investors on Thursday that it will withdraw its petition, filed in December 2018, against the banking regulator. In its notification to stock exchanges, the Uday Kotak-led bank said the RBI has agreed in principle to the following arrangement:
(a) Promoters’ voting rights in the bank to be capped at 20% of paid-up voting equity share capital (PUVESC) until March 31, 2020.
(b) Promoters’ voting rights in the bank to be capped at 15% of PUVESC from April 1, 2020, onwards.
(c) Promoters’ shareholding in the bank to be reduced to 26% of PUVESC of the bank within six months from the date of final approval of the RBI.
(d) Thereafter, the promoters will not purchase any further paid-up voting equity shares of the bank till the percentage of promoters’ shareholding reaches 15% of PUVESC of the bank or such higher percentage as may be permitted by the RBI from time to time.
(e) The promoters will be entitled to purchase paid-up voting equity shares of the bank up to 15% of the PUVESC of the bank or such higher percentage as may be permitted in the future, and exercise voting rights on such shares.
The truce between the RBI and Kotak Mahindra Bank suggests that the central bank has reviewed its stance on promoter shareholding at private sector banks. This will have an impact on other banks, such as Bandhan Bank, that have been in dialogue with the banking regulator on reducing promoters’ stake to comply with the norms.
The RBI’s bank licencing norms require private banks to ensure the promoter group’s holding does not exceed 40% in the first three years of bank operations, 20% in 10 years, and 15% in 15 years. Uday Kotak, promoter of Kotak Mahindra Bank, held 29.96% stake in the bank as on December 31, 2019.
Differences in this matter had been simmering between the lender and the regulator since 2008. The conflict soured to a point wherein for the first time ever, a private bank dragged the banking regulator to court to challenge its diktat.
The RBI asked the bank to reduce the promoter stake to 20% of paid-up capital by December 31, 2018, and 15% by March 31, 2020. In August 2018, the RBI rejected the bank’s proposal to dilute promoter stake to 19.7% via the issue of proposed perpetual non-cumulative preference shares as it was not in line with the guidelines. In December 2018, Kotak Mahindra Bank filed a petition in the Bombay High Court against the RBI in this matter.