Kotak Mahindra moves Bombay HC against RBI's promoter share ruling

Private sector lender Kotak Mahindra Bank Ltd has mover the Bombay High Court challenging a Reserve Bank of India decision that to disallow an issue of preference shares by the bank to reduce its promoter stake as required under the central bank’s regulations.

Uday Kotak, the bank’s chairman, had, in August, proposed to reduce his promoter holding in the bank through an issue of perpetual non-convertible preference shares (PNCPS) instead of bringing down his share of common equity. But the central bank shot down the proposal and told Kotak that the PNCPS route to dilute promoter shareholding was not acceptable.
In a statement to stock exchanges, the bank said it has filed a writ petition to “protect its interests” as a “matter of abundant caution”. He said the bank had once again explained its position to the RBI but is yet to hear from the regulator.
“We have since clarified and conveyed to the RBI our position in relation to PNCPS being a part of paid up capital and the legal basis on the matter of dilution of shareholding under the Banking Regulation Act. We have also shared with the RBI the opinions of eminent jurists and senior most legal counsels of the country, which confirm our understanding,” the bank said.
However, we have not heard from the RBI on the above matter. Given the milestone of December 31, 2018, the Bank has been left with no option but to protect its interest. By way of abundant caution, the Bank has today filed a writ petition with the Hon’ble Bombay High Court to validate the Bank’s position.   
RBI had asked Uday Kotak to lower his holding in the lender to 20 per cent by this year-end, and to 15 per cent by 31 March 2020 to comply wit regulations.
Uday Kotak directly held a 29.73 per cent stake in the lender, as of 30 September 2018, according to Bombay Stock Exchange data.
The bank said it had not heard from the RBI on the matter after clarifying that PNCPS were a part of the paid-up capital of the bank, and also the legal basis on the dilution of shareholding.
“Given the milestone of Dec. 31, 2018, the bank has been left with no option but to protect its interest,” the lender said in a statement. 
Meanwhile, reports last week said billionaire investor Warren Buffett’s Berkshire Hathaway Inc was rumoured to be in talks with Kotak Mahindra Bank to pick up a 10 per cent stake in the lender.
The Kotak Mahindra Bank stock shares had closed 8.4 per cent firmer following Friday’s report about the bank’s move against the RBI.