HYDERABAD : After months of legal tussle, private sector lender Kotak Mahindra Bank and the Reserve Bank of India (RBI) have finally worked out a peace deal. The bank has subsequently withdrawn its writ petition filed in the Bombay High Court against the central bank. On Thursday, Kotak Bank stated that the Reserve Bank has agreed in principle to cap promoter’s voting rights at 20 per cent of the paid-up voting equity share capital until March 2020. However, it should be reduced to 15 per cent by April.
Similarly, Kotak promoters have to lower their shareholding to 26 per cent within six months of receiving the final approval from the Reserve Bank. As on December 2019, Kotak Bank’s promoters led by managing director and chief executive officer Uday Kotak hold 29.96 per cent of the share capital. As per the Reserve Bank norms, bank promoters must reduce their shareholding to 40 per cent in the first three years after starting operations, 20 per cent in 10 years and 15 per cent in 15 years.
In line with the banking regulations, Kotak was mandated to lower promoter shareholding to 20 per cent by December 2018 and to 15 per cent by March 2022. So, in August 2018, the bank issued perpetual non-convertible preference shares, as part of its plan to reduce promoters’ shareholding from 30.3 to 17.9 per cent, but the regulator objected the proposal.
In December 2018, Kotak dragged the Reserve Bank to court after the central bank refused to allow its proposal to reduce stake via an issue of preference shares. The bank sought an interim protection from the Reserve Bank directive and proposed capping of voting rights of the promoters. The private lender was ready to issue an undertaking to limit its promoter voting rights to 20 per cent until May 2020, as concentration of power by the promoter was the main issue for the banking regulator.
Meanwhile, the Reserve Bank of India, in its missive to Kotak on Wednesday, said it won’t be able to purchase any additional paid-up voting equity shares till the percentage of promoters’ shareholding reaches 15 per cent or such higher percentage as may be permitted by the central bank in future. The Reserve Bank of India also said that the promoters will be entitled to purchase additional shares of the bank’s equity capital up to 15 per cent or such higher percentage as may be permitted in the future and exercise v o t i n g rights on s u c h cases.