Uday Kotak gets a break from RBI, he can have 26% in the bank

Mayur Shetty | TNN

Mumbai: Mahindra Bank has resolved its dispute with the Reserve Bank of India () on dilution of the tenure of the promoter. The agreement between the bank and the regulator foresees that the promoters obtain six months to dilute their participation to 26%, but they will lose voting rights beyond 15% as of April 2020.

In a statement to the stock exchanges, Kotak Mahindra Bank said the RBI had written to the bank on Wednesday, conveying acceptance of a proposal by which the bank's promoter Uday Kotak and the family, which owns almost 30%, will limit the voting rights of the promoters to 20% of the voting capital paid until March 31, 2020. From April 1, 2020 onwards, the Voting rights of the promoters in the bank will be limited to 15% of the share capital.

In addition, once the agreement with the RBI is approved, the promoters will reduce their participation to 26% within six months. Given the current market capitalization of the Rs 3.11 lakh crore bank, developers will have to sell shares worth Rs 12,500 crore. Alternatively, they may issue new shares or dilute the capital through an acquisition with the resulting exchange of shares causing the dilution.

Kotak Bank had filed a court order petition in the high court of Bombay opposing the RBI directive to dilute the promoter's participation when required to reduce the promoter's participation from around 30% to 20% in December 2018 and of 15% in 2020. Kotak Bank had responded to This directive issued non-convertible perpetual preference (PNCP) shares in August 2019, which reduced the developer's share to 19.7%. However, the central bank did not approve this, which led the bank to file a petition against the RBI.

As part of the agreement with the central bank, the promoters agreed not to buy more 'paid voting shares' from the bank until the percentage of participation of the promoters reaches 15%, or the highest percentage allowed by the RBI from time to time .

If the laws allow it in the future, the promoters will have the right to buy capital shares with voting rights of the bank up to 15% of the share capital or a higher percentage.

The bank's board of directors has decided to comply with the conditions established by the RBI. In June 2019, the RBI had penalized Kotak Mahindra Bank Rs 2 crore for its breach of the regulator's dictator over the shareholding of the promoters.

In September 2018, the RBI had frozen the salary of the CEO of Bandhan Bank, C S Ghosh, and prohibited the lender from opening new branches for not adhering to the central bank's guidelines on the dilution of the promoter's participation. According to bank sources, the petition filed by Kotak Bank could have prevented the RBI from imposing similar restrictions. Industry sources said this was the best deal that Kotak Bank could have expected. If the court ruling had gone in favor of the lender, the previous court orders had reaffirmed RBI's powers to issue new guidelines.