Kotak Mahindra Bank vs RBI: Bombay HC refuses to stay grant on Dec 31 deadline for promoter stake dilution

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Updated: Dec 17, 2018 3:18 PM

Kotak Mahindra Bank is now required to bring down its promoter stakeholding by 10% over the next remaining 15 days or ready to face action from the central bank.

In a major development, the Bombay High Court Monday refused to grant a stay on the Reserve Bank of India’s (RBI) December 31 deadline to Kotak Mahindra Bank for promoter stake dilution. Subsequent to the development, shares of Kotak Mahindra Bank declined by more than 3.3% to hit an intra-day low of Rs 1,214.10 a share on BSE.

The lender is now required to bring down the promoter stakeholding by 10% over the next remaining 15 days or ready to face action from the central bank. The Bombay High Court has set the next date of hearing as January 17.

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Earlier, the Reserve Bank of India had asked the bank to bring down stakes owned by promoters from 30% to less than 20% by the end of December 31, 2018. As on September 30, the promoter group held 30.3% equity stake in Kotak Mahindra Bank, of which, managing director and CEO Uday Kotak held 29.73% stake.

Last week, Kotak Mahindra Bank filed a writ petition with the Bombay High Court on the Banking Regulation Act, seeking validation in whether the issuance of Perpetual Non-convertible Preference Shares (PNCPS) in August 2 meets the requirements of reducing promoters’ stakeholding set by the RBI.

After the issuance, the bank’s paid-up capital was raised to Rs 1,453 crore from earlier 953 crores, thereby reducing the promoter’s holding from 30.3% to 19.7%. On August 14, Kotak Mahindra Bank, however, informed the exchanges that the method did not meet RBI’s requirements.

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