InvestorQ : Has the promoter holding issue of Kotak Bank been solved? Kotak Bank had taken RBI to court over its interpretation of share divestment?
Lavanya Subramanian made post

Has the promoter holding issue of Kotak Bank been solved? Kotak Bank had taken RBI to court over its interpretation of share divestment?

Answer
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ishika Banerjee answered.
8 months ago


Kotak Bank has been one of the interesting case studies on dilution of promoter stake. Apparently, RBI has given in-principle approval to Kotak Bank voting rights in the bank to be capped to 20% of paid-up voting equity share capital (PUVESC) until March 31, 2020. Subsequent to that date, the promoter voting rights in the bank will have to be capped at 15%. But the immediate mandate is to reduce the stake of the promoter of Kotak Bank from 29.96% to 26% on approval.

It may be recollected that RBI had originally asked Uday Kotak of Kotak Mahindra Bank to cut promoter shareholding to 20% of paid up capital by December 31, 2018 and down to 15% by March 31, 2020. Back in 2018 August, Kotak Bank had come with an innovative financial instrument and had proposed perpetual non-cumulative preference shares (PNCPS) to cut promoter holding to 19.70%. However, RBI had rejected the proposal as being wrong in principle. The RBI Order had been subsequently challenged by Kotak Bank in the Bombay High Court.

RBI bank licensing rules mandate that a private bank's promoter will need to pare holding to 40% within three years, 20% within 10 years and to 15% within 15 years. The RBI was of the view that the PNCPS was not tantamount to an equity stake sale and hence unacceptable.

However, Kotak Bank has since withdrawn its legal case against the RBI after the RBI accepted the argument of Kotak Bank in-principle. Here is what this implies for Kotak Bank.

· Promoters voting rights in the Bank to be capped to 20% of paid-up voting equity share capital (PUVESC) until March 31, 2020

· Promoters’ voting rights will then be capped at 15% of PUVESC effective from April 1, 2020 onwards

· Promoters’ shareholding in the Bank to be reduced to 26% of PUVESC of the Bank within six (6) months from the date RBI approval. Current promoter stake is 29.96%

· Subsequently, promoters will not purchase further paid up voting equity shares’ of Kotak Bank till the percentage of promoter shareholding reaches 15% of PUVESC of Kotak Mahindra Bank

· The promoters of Kotak Bank will be entitled to purchase paid-up voting equity shares of the Bank up to 15% of the PUVESC and exercise voting rights.