Mumbai: Kotak Mahindra Bank Ltd on Tuesday said the Reserve Bank of India (RBI) has rejected its proposal to issue non-convertible preference shares to reduce promoter holding. In a notice to the exchanges, the bank, however, said it had met the central bank guidelines and will continue to engage with RBI.

“RBI has communicated to us that our PNCPS (perpetual non-cumulative preference shares) issuance doesn’t meet its promoter holding dilution requirement. We continue to believe that we have met the requirement and will engage with the RBI," said the notice.

Kotak had earlier said it was looking to raise as much as 500 crore by issuing non-convertible PNCPS to dilute promoter shareholding. RBI had mandated the bank to reduce promoter shareholding to 20% of paid up capital by 31 December 2018, and 15% by 31 March 2020.

“I do not think RBI will yield, no matter how much the bank tries to convince the regulator. RBi has taken a stance since Kotak’s move to issue PNCPS sets a bad precedent for others to follow, something that RBI will not want to allow," said Suresh Ganapathy, head of financial services research, Macquarie Capital Securities India Pvt. Ltd.

“It is along expected lines and I was not expecting the RBI to allow this. You cannot circumvent RBI regulations. What we have to look at is the intent of the central bank’s guidelines and it holds true for others like Yes Bank and IndusInd Bank as well. I believe (Uday) Kotak would not do something wrong on corporate governance, having himself been on the committee as it is incumbent on him to follow the highest standards," said Anil Singhvi, chairman, Ican Investment Advisors. 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%.

Preference shares are considered part of paid-up capital, and RBI’s norms refer to ownership caps as a percentage of paid-up capital. Brokerages and investor advisory firms had questioned whether Kotak’s decision meets RBI’s guidelines. The management said the Banking Regulation Act, however, curtails voting rights of promoters to 15%. Typically, stake dilution happens through sale or issue of fresh equity shares. According to a Mint analysis, Kotak 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.

gopika.g@livemint.com

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