Uday Kotak, the founder and promoter of Kotak Mahindra Bank will have his voting rights in the bank’s board or AGM capped to a maximum of 20% with immediate effect and from April 1, 2020, onwards this will be further brought down to 15%, reports Livemint. This is as per a fiat by the banking regulator, the Reserve Bank of India.
RBI has brought in new regulations in respect of private banks in the country where the promoter group cannot hold more than 15% of the stake in the banks.
Uday Kotak owns 29.6% equity presently in the bank and under an arrangement reached with the regulator, this will stand reduced to 26% by around June-July. This means around 4% of the stake owned by Uday Kotak will be up for grabs. It is estimated that this could fetch him Rs 12,500 crore.
He will have to work out a timeframe to ultimately bring this holding down to 15% to remain in compliance of the RBI regulations for private banks. By capping his voting rights in the bank, the RBI has partly achieved its objective. The issue itself has been in the air for over a decade. Since Kotak and the RBI have now reached an understanding, Kotak Mahindra Bank has decided to withdraw a case it had filed in the Bombay High Court. The case related to RBI’s refusal to allow the promoters to issue perpetual non-convertible preference shares.
With that option now out of the window and the regulator agreeing to the gradual reduction in the stake, things could settle down. Liquidating a huge chunk of shares in the market would have meant the prices falling drastically and the promoters’ worth falling steeply. Kotak Mahindra Bank has had to pay a penalty imposed by RBI towards non-compliance of its guidelines.
Observers feel with this dispute resolved, RBI may find a way to resolve similar issues with two other banks, Bandhan Bank and IDFC First Bank as well.