Kotak Mahindra Bank has filed a writ petition against RBI for forbidding the bank to reduce promoter shareholding to the mandated level by issuing perpetual non-convertible preference shares
Uday Kotak. Kotak Mahindra Bank’s promoters need to bring down their shareholding from 30.02% to just under 20% by 31 December. Photo: Aniruddha Chowdhury/Mint
Mumbai: Uday Kotak-led Kotak Mahindra Bank on Monday said it has filed a writ petition against the Reserve Bank of India’s (RBI) for forbidding the bank to reduce promoter holding to the mandated level by issuing perpetual non-convertible preference shares (PNCPS). Its share price fell as much as 7.3% on Monday after the news. RBI has mandated the bank to reduce promoter shareholding to 20% of paid-up capital by 31 December 2018, and 15% by 31 March 2020.
Kotak Mahindra Bank had on 2 August announced completion of its PNCPS issue, resulting in dilution of promoter stake to 19.70% of paid-up capital. Following the issuance of these shares, the bank’s paid-up capital would have increased to ₹1,453 crore from ₹953 crore, thereby bringing down promoter’s interest in paid-up capital to 19.7% from 30.3%.
On 14 August 2018, Kotak Mahindra Bank had informed the stock exchanges of a central bank communication that its PNCPS issuance did not meet RBI’s promoter shareholding dilution requirement. Since then, Kotak Bank said it has clarified and conveyed its position to the central bank “in relation to PNCPS being a part of paid up capital and the legal basis on the matter of dilution of shareholding under the Banking Regulation Act”.
“We have also shared with the RBI the opinions of eminent jurists and senior most legal counsels of the country, which confirm our understanding,” Kotak Mahindra Bank said, adding that it has not heard from RBI on the issue, and given the deadline of 31 December, the “bank has been left with no option but to protect its interest”.
When the central bank had rejected the bank’s proposal in August, experts had said that it was along expected lines as one cannot circumvent RBI regulations. Meanwhile, typically, stake dilution happens through sale or issue of fresh equity shares.
Mint had reported on 14 August that Kotak Mahindra Bank would have needed to issue ₹1.25 trillion equity to meet norms of promoter stake dilution. If promoters had to sell shares outright, it would have required a block deal of about ₹25,000 crore.
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