Share price of Kotak Mahindra Bank jumped by more than 4% on Friday morning after the Reserve Bank of India (RBI) accepted the bank’s proposal to reduce promoters’ shareholding in the bank to 26% from the current 29.96%. This settles the long-pending dispute between the lender and the RBI. The scrip was trading at Rs 1,694 in early trade.
In a filing to the market regulator, Kotak Mahindra said that RBI vide its letter dated January 29, 2020, has conveyed its in-principle acceptance of the banks offer to cap promoters voting rights in the Bank to 20% of paid-up voting equity share capital (PUVESC) until March 31, 2020. “Promoters’ voting rights in the Bank to be capped to 15% of PUVESC from April 1, 2020, onwards,” the bank added.
Markets reacted positively to the news as Kotak Mahindra Bank opened 5% higher on Friday morning.
Nomura said that the issue of promoter’s shareholding being settled is a near-term positive for the stock. “It settles pending litigation with regulator without any operational repercussions,” Nomura added. UBS along with Nomura maintain a neutral outlook for the stock. The development, according to Morgan Stanley has reduced overhang around significant equity supply.
Kotak Mahindra Bank was asked the RBI to cut promoters shareholding to 20% of paid-up capital by December 31, 2018, and to cut it further to 15% by March 31, 2020. This followed a proposal by the bank to cut promoter holding to 19.70%, a proposal that was rejected by the central bank. Kotak Mahindra Bank had challenged the RBI in relation to this matter in the Bombay High Court.
The Bank in a statement said that the board of directors has decided to “withdraw Writ Petition filed by it in the Hon’ble High Court of Bombay.”
The RBI’s bank licensing rules mandate that a private bank’s promoter will need to pare holding to 40% within three years, 20% within 10 years and 15% within 15 years. In 2017, the RBI had written to the bank handing it a timeline within which the private lender needed to reduce the promoter’s stake.