RBI asks Kotak Mahindra Bank to cut promoters’ stake to 40% by September 2014

The Reserve Bank of India (RBI) has directed the private sector lender Kotak Mahindra Bank Ltd to reduce its promoter holding to 40 per cent by September 2014 from the current 43.58 per cent, according to a stock market disclosure.

The lender has been asked to bring down the promoter holding further to 30 per cent by December 31, 2016.

Two years ago RBI had asked Kotak Mahindra Bank, which converted itself from a non-banking finance company into a full-fledged bank in 2003, to reduce the promoter holding to 20 per cent by 2018 and 10 per cent by 2020.

The RBI’s directions to bring down promoters holding was in order to conform to extant banking licence regulations.

As on March 31, 2014, promoters owned 43.58 per cent equity stake in Kotak Mahindra Bank. Among the promoter group, Uday Suresh Kotak held the largest stake of 39.76 per cent, while the rest is held by family members and a trustee company.

Under the new norms, promoters can hold up to 40 per cent equity stake in the first five years, and then cut it gradually to 15 per cent in 12 years of starting its operations.

Recently, a Reserve Bank of India-appointed panel, headed by PJ Nayak—former head of Axis Bank and Morgan Stanley India—recommended that ownership of promoters in private sector banks should be increased to 25 per cent. The panel was set up to review governance of bank boards.

In the March quarter, Kotak Mahindra Bank registered a decline of 6.65 per cent in its net profit to Rs 407.18 crore from the year-ago period, while its total income also dropped by 0.74 per cent to Rs 2,552.96 crore in the quarter ended on March 31, 2014. Kotak Mahindra group is one of India's leading financial services conglomerates.

Shares of the bank were last trading at Rs 866.65 per share, up 0.37 per cent from its previous close on BSE.

The promoters need to sell around 27.5 million shares or issue 68.9 million fresh shares in the next four months to meet the shareholding requirement, as per VCCircle estimates. At the current market price promoters need to sell shares worth Rs 2,385 crore or issue shares worth around Rs 6,000 crore or $1 billion. 

(Edited by Joby Puthuparampil Johnson)

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