Kotak petitions court against RBI preference share rule

Uday Kotak, the billionaire head of Kotak Mahindra, has been asked by India’s central bank, the Reserve Bank of India (RBI), to lower his holding in the company to 20 per cent by the end of the year, and to 15 per cent by March 31, 2020.

He directly held a 29.73 per cent stake as of Sept. 30, according to Bombay Stock Exchange data. Kotak Mahindra filed a writ petition on Monday with the Bombay High Court as it seeks to “validate” its position, the bank said in a statement here

“Given the milestone of Dec. 31, 2018, the bank has been left with no option but to protect its interest,” it said. Kotak Mahindra issued perpetual non-convertible preference shares (PNCPS) in August in a bid to comply with promoter stake rules, but was told by the RBI that did not meet official requirements.

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.

“The case against RBI could mean that (Uday) Kotak is not able to sell his stake. So he is buying time,” said AK Prabhakar, head of research at IDBI Capital. Current market conditions were not conducive for a stake sale, he added. Kotak Mahindra shares ended 6.4 per cent lower on Monday.

Last week, a report said billionaire investor Warren Buffett’s Berkshire Hathaway Inc was looking to buy a 10 per cent stake in Kotak Mahindra, driving shares of the lender 8 per cent higher on Friday. Any such deal would help Uday Kotak reduce his holding in the company. The bank said it was unaware of any such plans by Berkshire.

Bandhan Bank is closely monitoring the developments in Kotak Mahindra Bank with respect to reducing promoter holding using preference shares, as the RBI has mandated a similar directive to the Kolkata- based lender. "We are observing the Kotak Bank development very closely," a Bandhan Bank source said. RBI had imposed restrictions on Bandhan Bank's branch expansion after it failed to pare promoters’ stake to 40 per cent from close to 82 per cent, within the stipulated three- year time frame. The lender commenced operations on August 23, 2015. Bank license norms require a lender to bring down promoter holding to 40 per cent within three years of starting operations.