A rebuff from the regulator may set Asia\u2019s richest banker Uday Kotak on a $17 billion acquisition trail, as he seeks to meet a year-end deadline to reduce his stake in Kotak Mahindra Bank Ltd. below 20 percent. Buying another financial firm may be the most palatable way for Kotak to pare his holding, following the Reserve Bank of India\u2019s rejection earlier this month of a preference share sale proposal. If the bank issues about 1.2 trillion rupees ($17 billion) of new stock to back an acquisition, that would effectively dilute the billionaire\u2019s holding below the 20 percent target. \u201cUday Kotak may favor a big acquisition that will take care of his dilution woes in one go,\u201d said Rakesh Kumar, an analyst with Elara Securities India Pvt., who remains negative about Kotak Mahindra stock until the issue is resolved. Acquisition targets could include Axis Bank Ltd., India\u2019s third-largest private lender, or a financial firm such as PNB Housing Finance Ltd., according to Devansh Lakhani, an analyst at Lakhani Financial Services Ltd. Last year, the RBI ordered Kotak to cut his ownership of the bank in phases, to below 20 percent by 2018 and to 15 percent by March 31, 2020, as part of a plan to reduce the influence of founding shareholders. Kotak currently owns about 567 million of the bank\u2019s 1.9 billion shares, or just under 30 percent. Preference Shares The bank has said it still hopes to persuade the RBI to approve its original plan to reduce Kotak\u2019s stake. That involves a proposed sale of 5 billion rupees of so-called non-convertible perpetual non-cumulative preference shares to domestic institutional investors. But if the bank fails to sway the regulator and opts solely for an acquisition to reduce its founder\u2019s stake, it would require the issuance of about 970 million new Kotak Mahindra ordinary shares to get the holding below 20 percent, worth about 1.2 trillion rupees at current market prices. Another option is for Uday Kotak to reduce his stake either wholly or in part via a share sale to institutional investors. The billionaire founder took this route when he sold 1.5 percent of his shares to Caisse de Depot et Placement du Quebec and Canada Pension Plan Investment Board in March 2017. To get down to the 20 percent solely via a share sale would require Kotak to dispose of about $3.4 billion of the bank\u2019s ordinary shares. An acquisition is also part of the Kotak playbook. In 2014, the bank purchased ING Vysya Bank Ltd. in a deal valued at $2.4 billion via a share swap. Rumors that Kotak Mahindra is about to buy another financial firm have boosted the shares of Axis Bank, PNB Housing Finance, Mahindra & Mahindra Financial Services Ltd. and Shriram Transport Finance Co., among others, in recent months. \u2018Best Target\u2019 Axis Bank, with a market capitalization of $23 billion, looks like the \u201cbest target\u201d in that it would help Kotak Mahindra increase its presence in corporate banking, according to Purvesh Shelatkar, senior vice president at Centrum Broking Ltd. Another option, which also has a precedent, is that Uday Kotak dilutes his stake with a new $17 billion share offering unrelated to an acquisition. But this is considered unlikely because Kotak Mahindra\u2019s capital adequacy ratio is a more than comfortable 17.7 percent, so any further buffering via a share issue would lead to an unnecessary dilution of earnings, according to Lakhani. The bank last issued fresh shares in May 2017 when it raised $901 million to boost lending and raise money for acquisitions.