RBI asks Kotak & Co to cut stake in bank

The Reserve Bank of India (RBI) has asked the promoters of Kotak Mahindra Bank to reduce their stake from the current 45% to 10% by 2016 in order to conform to extant banking licence regulations.

Under the new norms, promoters are not allowed to hold more than 15% stake in a bank. They can hold up to 40% stake in the first five years but have to reduce it gradually to 15% in 12 years.

The promoters of Kotak Mahindra Bank have requested the RBI to give them time till 2025 to dilute their stake while raising capital for growth.

The RBI, however, is not ready to accede and is pushing for the cut by 2016.

Kotak Mahindra promoters said they managed to reduce their stake in the bank to 45% from the earlier 63%, within five years after it received banking licence in 2003.

This was in line with an earlier agreement which the bank’s promoters had with the regulator at the time of licence approval.

RBI had asked the promoters to bring down their stake below 50% within five years.

“Ever since the Lehmann Brothers crisis, though, the bank has taken a very cautious stance and not grown its balance-sheet beyond a certain limit,” said an analyst from a local brokerage.

The tone of Kotak’s response to the central bank sounds dovish too.

“The bank continues to explore value creating options on an on-going basis with a clear focus on growing the institution. The bank continues to be committed to following the statutory directions of the RBI,” a spokesperson at Kotak Mahindra Bank told DNA in a response to an email query.

Analysts believe if the 2016 deadline is enforced, the promoters may need to bring in strategic investors. But it won’t be easy as the 15% ceiling would still come in the way.

“There is merit in the bank’s request for a 2025 deadline and it is expected that the regulator would eventually agree with it,” believes Vaibhav Agrawal, vice-president (research), Angel Broking.

Meanwhile, promoter stake in Yes Bank, which had received its banking licence around the same time as Kotak Mahindra Bank, stood at 26.21% on December 31, 2011, according to Bombay Stock Exchange data.

Analysts believe Yes Bank may also be asked to reduce promoter stake.

“However, the situation in Yes Bank is not like Kotak Mahindra so it may be spared. But Kotak may also be given more time by the regulator,” said Nitin Kumar, deputy vice president, Quant Broking.

The Hinduja-group promoted IndusInd Bank, in 2009, was also asked by the RBI to reduce promoter stake holding to 10% by March 2012.

The promoter stake as on December 31, 2011 stood at 19.5% as per BSE data.