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Banking
A show cause notice was issued to the bank after it failed to comply with RBI’s directions to furnish details of its promoter shareholding.
  • Saturday, June 08, 2019 - 10:40
Image source: ask27 via Wikimedia Commons (CC BY-SA 4.0)

The Reserve Bank of India (RBI) on Friday imposed a penalty of Rs 2 crore on Kotak Mahindra Bank for not complying with the central bank's directions to furnish details of its promoter shareholding.

The bank was directed by RBI to furnish information about details of the shareholding held by its promoters and to submit details of the proposed course of action or strategy of the bank for complying with the permitted timeline for dilution of promoter shareholding.

"The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs 20 million on Kotak Mahindra Bank Limited for noncompliance with the directions issued to the bank by RBI in exercise of its powers under sections 27(2) and 35A of the Banking Regulation Act, 1949 (the Act) to furnish information specified therein," said the RBI statement.

As per RBI’s norms on banking licensing, the stake held by a promoter in the bank should be brought down to 40% within three years of operation, 20% in 10 years and then 15% in 15 years. Going by these norms, Kotak proposed to issue non-convertible perpetual non-cumulative preference shares at Rs 5 apiece, coming up to Rs 500 crore. This would bring down the promoter stake to 19.7%. However, RBI did not approve of this, saying that preference shares isnt part of promoter’s core equity and that preference shares will help promoters retain voting rights. This matter eventually reached Bombay High Court.

The bank was also directed to convey its commitment to achieve the dilution in promoter shareholding as per the timelines stipulated, but the bank failed to comply with the said directions and a show cause notice was issued to the bank.

"After considering the reply received from the bank, submissions made by the bank during personal hearing and the documents submitted by it, RBI came to the conclusion that the bank had failed to comply with the directions issued by RBI and decided to impose monetary penalty on the bank," it said.

The apex bank, however, noted that the action is based on the "deficiencies in regulatory compliance" and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank.

Kotak Mahindra said in a filing with the Bombay Stock Exchange that is it examining the order.