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Promoter holding has to be further cut to 30% by 31 December, 2016, the bank said. Photo: Mint
Promoter holding has to be further cut to 30% by 31 December, 2016, the bank said. Photo: Mint

RBI orders Kotak Mahindra Bank to pare promoter’s stake

Promoter holding has to be reduced to 40% by Sep from the current 43.58%, and further cut to 30% by 31 Dec 2016

Mumbai: Kotak Mahindra Bank Ltd has been asked by the banking regulator to cut the lender’s promoter holding to 40% by September from 43.58%, the private sector lender said in a notice to the stock exchange.

Promoter holding has to be further cut to 30% by 31 December 2016, the bank said.

The latest Reserve Bank of India (RBI) directive has given the bank two more steps to reduce its promoter holding. Earlier in a directive in June, the central bank had “advised" the bank to bring promoter holding down to 20% by 31 March 2018 from 45.21% then.

Kotak Mahindra Bank’s vice-chairman and managing director Uday Kotak personally controls 43.25% of the 43.58% promoter stake in the bank valued currently at 28,993 crore. The rest is owned by members of the Kotak family.

It is unclear whether RBI has sent a similar communication to Kotak’s peers, who also have promoter stake higher than 10%. Yes Bank Ltd with 25.55% promoter holding, IndusInd Bank Ltd with promoter holding at 15.21%, and DCB Bank Ltd with 18.46% holding may have also been earlier asked to reduce their promoter stake.

An email sent to all three banks asking if the central bank had communicated any fresh timeline to reduce promoter stake did not elicit a response.

Saurabh Tripathi, a partner and director at Boston Consulting Group (BCG), said reducing promoter stake in banks was in line with the larger stated policy of RBI.

“The aim is to have a diversified ownership with not a single entity controlling the bank. As banks grow, they need capital; so equity dilution is a natural process in which I do not see any hiccups," Tripathi said.

In its guidelines on ownership and governance in private sector banks issued in February 2005, RBI had said “where (bank) ownership is that of a corporate entity, the objective will be to ensure no single individual/entity has ownership and control in excess of 10% of that entity. Where the ownership is that of a financial entity, the objective will be to ensure it is a well established regulated entity, widely held, publicly listed and enjoys good standing in the financial community."

However, the recent guidelines by RBI when issuing new bank licences earlier this year put promoter stake of these banks at 15%, triggering expectation from existing banks to get a similar leeway.

Tripathi from BCG said RBI is silent on whether the 15% threshold applies to even existing banks.

“The central bank would want to have parity in regulation. But the new banks have also been licenced under certain norms like a holding structure, which is not the case for existing banks; so RBI can say 15% is only for new banks which have those restrictions," he said.

Shinjini Kumar, director at consulting firm PricewaterhouseCoopers, said RBI’s idea to have diversified holding in banks was because “banking is a business associated with the larger public good".

“This has been a long-term agenda and may be they are pushing the pedal now because of new banks coming in," Kumar said.

Reducing promoter holding in banks is not a surprise and it is unlikely to impact on bank stocks because it is already known and priced in by the market, said Daljit Singh Kohli, head of research at India Nivesh Securities Ltd.

Shares of Kotak Mahindra Bank gained 0.79% to close at 870.25 on Tuesday on BSE, while the exchange’s benchmark Sensex lost 0.68% to close at 24,549.51 points and the banking index, Bankex, lost 0.61% to 17,286.15 points.

Interestingly, RBI is silent on its June 2012 directive which had also advised Kotak Mahindra Bank to bring down its promoter holding to 20% by 31 March 2018.

“(RBI) has also indicated it will take a view on dilution over the next two years thereafter, from 20% to 10% or such other percentage depending upon the prescription of promoter holding in the new bank guidelines," Kotak Mahindra Bank had said in a stock exchange notice then.

RBI is targeting reducing promoter holding in individual or corporate-promoted banks as it wants to make shareholding more institutionalized.

For example, even though mortgage lender Housing Development Finance Corp. Ltd owns more than 20% in HDFC Bank Ltd, it is not expected to reduce stake since the parent is already owned by a diversified set of investors.

Similar is the case with ING Vysya Bank Ltd, which is controlled by Netherlands-based diversified financial conglomerate ING Groep NV.

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