A few minority shareholders are understood to have raised eyebrows at the recent allotment of preferential shares by Kotak Mahindra Bank to pare the stake of the lender’s founder and promoter Uday Kotak to 19.70 per cent from 30 per cent.

These include foreign fund houses, which are uncertain about the transaction, and are waiting to see whether it will pass muster with the Reserve Bank of India.

“Legally, there is nothing wrong with the transaction. But whether the promoter stake could have been reduced in another way is the main question,” said a person familiar with the development, adding that they are on a wait-and-watch mode.

Paid-up capital

Kotak Mahindra Bank had last week issued non-convertible perpetual non-cumulative preference shares (PNCPS) on private placement basis to raise ₹500 crore.“Subsequent to this issue of ₹500 crore of PNCPS, the paid-up capital of the bank has increased from ₹953.16 crore to ₹1,453.16 crore,” the lender had said in a regulatory filing.

“This is part of the paid-up capital of the bank and we have informed the RBI,” said Jaimin Bhatt, Group CFO, Kotak Mahindra Bank.

Sources said the RBI is likely to revert later this month, and the allotment is in line with the central bank’s guidelines. They also pointed out that a substantial dilution in equity would have adversely affected minority shareholders and this way their equity has not been diluted.

“As of now, none of the minority shareholders have officially come forward with concerns,” said a second person.

Shareholding pattern

According to the bank’s shareholding pattern as on June 30, 2018, mutual funds and UTI hold 6.85 per cent equity in the lender, insurance companies hold 1.6 per cent stake, and foreign bodies 5.10 per cent. Analysts said the main issue is that there should be unified rules on ownership of banks, whether public or private, to ensure that their risk is contained through regulations and audits.

“In this particular case, our analysis shows that if the RBI rules were to be implemented strictly, it would have hurt all stakeholders,” said JN Gupta, Managing Director, Stakeholders Empowerment Services.

In an earlier report, SES had said that cap on voting rights, board composition, and approval on appointment – coupled with oversight by the RBI – serves as sufficient deterrent on promoters’ say.

“Unless some other cogent reason is found, it is very clear that reduction in promoters holding will hurt investors as well as the bank without in any way strengthening the RBI control,” it had said.

A report by Morgan Stanley has dubbed the transaction by Kotak Mahindra Bank as an “interesting move”. It noted that the RBI’s recent guidelines have defined promoter ownership based on paid-up equity-share capital. “We need to see if the RBI is comfortable with the above move. If the RBI is fine, this reduces an overhang of big equity supply from the stock,” it said.

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