Billionaire Uday Kotak, promoter and head of Kotak Mahindra Bank, may be running out of time in complying with the RBI’s shareholding guidelines.
With just two days left for Kotak to cut his stake worth around $3 billion in the bank, legal experts say the lender could face RBI action similar to what Bandhan Bank saw in September.
Under shareholding norms, Kotak is required to cut his holding to 20 per cent from the current 30 per cent by December 31, and to 15 per cent by March 2020.
Legal and corporate governance experts say Kotak’s non-compliance could expose minority shareholders to the risk of regulatory punishment.
In September, for similar shareholding violations, the RBI froze the salary of Bandhan Bank founder and CEO Chandra Shekhar Ghosh and denied the bank permission to open new branches.
In August, Kotak sold ₹100 crore worth of non-convertible preference shares to a few domestic institutions and claimed a reduction in promoter holding to 19.70 per cent.
The RBI did not approve of this method, following which the bank filed an appeal with the Bombay High Court challenging its decision.
The High Court, earlier this month, refused to grant any interim relief to Kotak Bank.
When contacted, Rohit Rao, Chief Communication Officer, Kotak Mahindra Bank, said: “The bank believes it is compliant with RBI’s promoter dilution communication.
The RBI has not accepted the bank’s contention. The matter is sub-judice, hence the bank cannot offer any comments on this.”
Earlier reprimand
The RBI had reprimanded Kotak in 2007, too, for not meeting the deadline to cut his stake to 30 per cent from 49 per cent.
It had then instructed Kotak Bank to draw up a plan under shareholding guidelines for private banks to reduce the promoter holding to 10 per cent.
Kotak’s petition shows there were over 30 letters, e-mails and other forms of correspondence between the bank and the RBI, including several seeking deadline extensions.
“It is unprecedented for Kotak Bank to sue RBI . On earlier occasions, the promoter complied with the norms but the current situation leaves minority shareholders unnecessarily exposed to regulatory punishments/restrictions on Kotak Bank for no fault of theirs,” said Anil Singhvi, Chairman, ICAN Investments Advisors.
Banking sources told BusinessLine the RBI is likely to choose to wait for the final High Court judgment in the matter although there is no stay on any action by the regulator.
The next hearing in the case is scheduled for January 17.