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Promoters of private sector banks such as Bandhan Bank may take a leaf out of Kotak Mahindra Bank’s novel way of paring promoter stake to meet regulatory norms.
The private sector bank recently issued 100 crore non-convertible perpetual non-cumulative preference shares (8.10 per cent PNCPS) of face value ₹5 each to eligible investors at an issue price of ₹5 per PNCPS aggregating to ₹500 crore. The dividend rate on the PNCPS is 8.10 per cent per annum.
“After the issuance of PNCPS, promoter holding is 19.70 per cent of the paid-up capital (down from 30.03 per cent as of June-end 2018). This meets the RBI’s communications (requiring in this behalf for December 31, 2018),” the bank said in a notice to the stock exchange.
The RBI has asked the bank to bring down promoter shareholding to 20 per cent by December 31, 2018, and 15 per cent by March 31, 2020.
“If Kotak can do this, why can’t Bandhan (Bank)? Bandhan has to bring down promoter stake from 82 per cent to 40 per cent.
“If Kotak sets such a precedent, Bandhan could also take advantage of this kind of financial structuring to solve its promoter stake-sale issue,” according to a report by Macquarie Research.
Terming the PNCPS issuance as a “novel experiment”, a banking sector analyst observed that if the bank had diluted equity substantially, minority shareholders would have been more adversely affected. The transaction is positive as a large amount of their equity has not got diluted, he added.
According to ICICI Securities, with this transaction, the ambiguity with respect to reduction in promoter stake has been settled, subject to RBI approval. Apparently, the transaction looks positive for both minority shareholders and promoters.
The Macquarie report said the Banking Regulation Act allows such a transaction (dilution of promoter stake via PNCPS).
“Given that these shares are perpetual in nature, they are indeed treated as paid-up share capital. As per the Companies Act, however, these shares do not carry any voting rights.
“This does not hamper its consideration as ‘capital’. Non-convertible nature means there is no risk of dilution for minority shareholders either,” the report added.
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