RBI blinks in Kotak tiff
Uday Kotak has reasons to be happy over the vexed issue of promoter shareholding in Kotak Mahindra Bank (Kotak Bank), over which he was engaged in a running feud with the RBI that had spilled out on to the courts.
The RBI has relaxed its earlier order to bring down his stake in the bank to 15 per cent by March 31, 2020. The promoters of Kotak Mahindra Bank currently hold around 30 per cent.
Kotak Bank in December 2018 had hauled the RBI to the courts over an apex bank order in August 2017 that mandated promoter shareholding in a bank be brought down to 20 per cent of paid-up voting equity capital by December 31, 2018 and to 15 per cent by March 31, 2020.
In a regulatory filing to the stock exchanges, Kotak Bank said that following a proposal made by the bank to the RBI in August last year and on January 10, the RBI has conveyed its in-principle acceptance to a framework to reduce the promoter stake. Sources close to the bank said the RBI had accepted its offer of separating voting rights from economic interest.
Firstly, Uday Kotak will not have to reduce his stake to 15 per cent by March. The central bank has said promoters’ shareholding in the bank will have to be reduced to 26 per cent of the paid-up voting equity share capital (PUVESC). This should be done within six months from the date of final approval from the RBI. Market circles said Kotak would now have to sell only 4 per cent in the bank.
Second, promoters voting rights will be capped to 20 per cent of PUVESC until March 31, 2020. From April 1, 2020, the voting rights will be capped at 15 per cent of PUVESC.
Promoters will not purchase any further paid-up voting equity shares of the bank till the percentage of promoters’ shareholding reaches 15 per cent of PUVESC or such higher percentage as may be permitted by the RBI from time to time, Kotak Bank said. In other words, the promoters stake can fall to 15 per cent — through mergers or acquisition or stake sale. But, here, too, no timeline has been set by the RBI for such an event. The promoters cannot buy equity shares.
The RBI also gave in-principle approval that the promoters will be entitled to purchase paid-up voting equity shares up to 15 per cent of PUVESC of the bank or such higher percentage as may be permitted in the future, and exercise voting rights on such shares.
With the RBI acceptance, Kotak Bank said it would withdraw the case filed against the regulator in the Bombay high court. “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 High Court of Bombay,” the bank said.
Speaking to The Telegraph, Shriram Subramanian, founder of proxy advisory firm InGovern, said while one has to wait for the final order from the RBI, the promoters have less pressure to sell their stake and the central bank has given more time to Kotak to meet its rules.