RBI asks Kotak Bank to trim promoter holding to 40% by September-end

The Reserve Bank of India (RBI) has directed private sector Kotak Mahindra Bank to reduce promoter stake in the bank to 40 per cent latest by 30 September, from the existing 43.58 per cent.

The central bank wants Kotak Mahindra Bank to reduce the promoter stake further to 30 per cent by 31 December 2016.

Of the 43.58 per cent promoter shareholding in Kotak Bank, Uday Suresh Kotak holds nearly 39.76 per cent while Kotak Trustee Company Pvt Ltd and others hold the remaining.

In a filing with the Bombay Stock Exchange, Kotak Mahindra Bank said, ''With reference to earlier announcement dated June 27, 2012 intimating RBI's requirement to bring down bank's promoter shareholding, Kotak Mahindra Bank Ltd has now informed BSE that the bank has received a communication from the RBI to bring down its promoter shareholding to 40 per cent by September 30, 2014 per estimates provided by the Bank.''

RBI had, in June 2012, asked Kotak Mahindra Bank to reduce promoter holding to 20 per cent by 2018 and to 10 per cent by 2020 from the then 45.21 per cent. This has been done as per extant banking licence regulations.

Kotak bank, which converted itself into a full-fledged bank in 2003 from a non-banking finance company, has to abide by RBI's directions to bring down promoters holding in order to conform to the licensing regulations.

However, RBI had also indicated that it would take a final view on stake dilution from 20 per cent to 10 per cent or such other percentage, over the next two years, depending on the prescription of promoter holding in the new bank guidelines.

RBI has kept the maximum promoter shareholding for banks under the new bank licensing norms at 15 per cent.

Meanwhile, a committee headed by former Axis Bank Chairman PJ Nayak appointed by the RBI had recently recommended that promoters be allowed to hold 25 per cent stake in private sector banks as against the present norm of 10 per cent.

According to the Nayak committee, since the RBI has allowed a new category of investors called authorised banks investors (ABI) comprising all diversified funds to have 20 per cent stake in a bank, promoters should naturally have a higher share.

The present promoter holding level in almost all private sector banks, except for ICICI Bank, is above the limit (as of December 2013).

RBI is likely to ask Yes Bank Ltd with over 25 per cent promoter holding and DCB Bank Ltd with over 18 per cent holding to reduce their promoter stake.

This is part of the central bank's efforts to institutionalise and improve corporate governance in banks by diversifying shareholding away from individual promoters.