RBI accepts Kotak Bank promoters' plan to cap voting rights, reduce stake

Private sector lender Kotak Mahindra Bank on Thursday said that the Reserve Bank of India (RBI) in a letter to the bank on January 29 has agreed in-principle to cap promoters’ voting rights in the bank to 20 per cent of the paid up voting equity share capital until March 31, 2020.

The banking regulator has also said that the promoters' voting rights should be brought down to 15 per cent of the paid up voting equity share capital (PUVSEC) from April 1, 2020.

Moreover, the RBI has conveyed to the bank that the promoters have to bring down their shareholding in the bank to 26 per cent of the PUVSEC within six months of receiving the final approval from RBI.

Promoters led by Managing Director and CEO Uday Kotak owned 29.96 per cent of the share capital as on December 2019.

Thereafter, the 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 the bank or such higher percentage as may be permitted by RBI in future.

The RBI has further said that the promoters of the bank will be entitled to purchase additional shares of the bank’s equity capital up to 15 per cent or such higher percentage as may be permitted in the future, and exercise voting rights on such shares.

The private sector lender informed the stock exchanges that it has withdrawn the writ petition it had filed in the Bombay High Court against the regulator.

In December 2018, Kotak Mahindra Bank had moved a writ petition in the Bombay High Court against the RBI after the central bank did not accept the reduction of promoter shareholding through an issue of preference shares.

The RBI had mandated the bank to reduce its promoter shareholding to 20 per cent by December 31, 2018 and to 15 per cent by March 2022. In August 2018, the lender had issued perpetual non-convertible preference shares, which it said would trim promoters' shareholding from 30.3 per cent to 19.7 per cent but the regulator did not agree with this method.

The bank had sought interim protection from the RBI directive and proposed capping of voting rights of the promoters. The private lender was ready to issue an undertaking to limit its promoter voting rights to 20 per cent until May 2020 as concentration of power by the promoter is the main issue for the banking regulator.

According to RBI norms, a bank needs to bring down its promoter shareholding to 40 per cent in the first three years after starting operations. Thereafter, the bank needs to bring down its promoter shareholding to 20 per cent in 10 years and 15 per cent in 15 years.