Kotak Mahindra Bank to withdraw the court case against RBI

Uday Kotak, the billionaire founder of  Kotak Mahindra Bank and the Reserve Bank of India (RBI) gave in to their respective stands in the dispute over the bank’s promoter shareholding, thus paving way for the banker to own a higher stake than what the regulator had stipulated.

As per the agreement between the bank and RBI, the promoter will be permitted to own a 26% stake. The 13-month-old court dispute comes to an end with this agreement. It began after the banking regulator had prompted Kotak to reduce its stake to 15% as part of the licensing guidelines.

Insiders familiar with the matter believe that Kotak’s level of shareholding will be in continuance as long as the bank does not raise capital from a share sale to outsiders or on a rights basis. As per the agreement, the promoter’s voting rights would be capped at 15% of the capital, regardless of the level of ownership held by him. This will make the higher stake less effective in terms of overall governance but will prove to be economically beneficial.

Kotak Bank in a regulatory filing said that RBI via its letter dated January 29, 2020, has declared its in-principle acceptance for promoters voting rights to be capped at 20% of paid-up voting equity share capital until March 31, 2020, and at the rate of 15% from April 1, 2020, onwards,”.

The closure of the legal dispute also opens up scope for mergers and takeovers for Kotak Mahindra Bank.


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