Patel announces shock exit as RBI chief before term
POLITICAL STORM Congress says institution ‘denigrated’ by govt; Raghuram Rajan says ‘Indians should be concerned’
MUMBAI/NEWDELHI: Reserve Bank of India (RBI) governor Urjit Patel resigned from the position citing personal reasons with immediate effect on Monday, nearly 10 months before the completion of his term in September next year.
The announcement that could potentially roil currency and equity markets on Tuesday triggered a political war of words, with former prime minister Manmohan Singh saying he hoped that Patel’s sudden resignation was not a “harbinger of the [Narendra] Modi government’s attempts to destroy” the institutional foundations of India’s $3 trillion economy.
Prime Minister Narendra Modi said Patel left behind a great legacy and would be missed “immensely”. “Dr Urjit Patel is an economist of a very high calibre with a deep and insightful understanding of macro-economic issues. He steered the banking system from chaos to order and ensured discipline. Under his leadership, the RBI brought financial stability,” Modi tweeted.
Finance minister Arun Jaitley was similarly effusive in his praise for Patel’s leadership of the central bank. “The Government acknowledges with deep sense of appreciation the services rendered by Dr. Urjit Patel to this country both in his capacity as the Governor and the Deputy Governor of The RBI. It was a pleasure for me to deal with him and benefit from his scholarship,” Jaitley wrote on Twitter.
MUMBAI: Kotak Mahindra Bank Ltd has moved the Bombay high court against the Reserve Bank of India (RBI) after its promoter Uday Kotak was barred from reducing his stake in the bank through a preference share issue, in the first instance of a bank dragging the regulator to court.
Documents on the Bombay high court website show the writ petition was filed by Kotak Mahindra Bank and its director Chengalath Jayaram against the RBI and the finance ministry. Law firm Manilal Kher Ambalal & Co. (MKA & Co.) is representing Kotak Mahindra. The first hearing on the case will take place on December 17. Vikram Trivedi, managing partner of MKA & Co. declined to comment, citing client confidentiality.
The RBI had mandated the private sector lender to trim promoter shareholding to 20% of its paid-up capital by December 31, 2018, and to 15% before March 31, 2020. On August 2, Kotak Mahindra completed an issue of perpetlenging ual non-convertible preference shares (PNCPS), increasing the bank’s paid-up capital from ₹953 crore to ₹1,453 crore, thereby bringing down the promoter’s holding from 30.3% to 19.7%. However, the bank informed the stock exchanges on August 14 that the method did not meet the RBI’s requirements.
In a regulatory filing on Monday, Kotak Mahindra said ever since, it has clarified and conveyed its position to the central bank “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 legal counsels of the country, which confirm our understanding.” It added that it has not heard from the RBI and given the deadline of December 31, the “bank has been left with no option, but to protect its interests”.
A banking analyst, who did not wish to be identified, said in chal- RBI’s decision, Kotak Mahindra has essentially challenged RBI’s powers to regulate private sector banks.
There are two possible outcomes from this, the analyst said. The first is, if Kotak wins the case and is allowed to use PNCPS to reduce promoter shareholding, the RBI will definitely challenge it in the Supreme Court. The second scenarios is, if Kotak loses the case, then he will not only have to use another way to pare his stake, but will also face far more stringent regulatory supervision following the debacle. In either scenario, the December 31 deadline is unlikely to be met. “The bank has filed a case against the regulator. The case will surely set a precedent for any such future disputes. The matter pertains to the interpretation of the law and should be dealt with by the court,” Ashish K Singh, founder and managing partner of law firm Capstone Legal said. “The deadline for the diluting the shareholding is December 31, 2018; so if the petition is admitted, the time period is required to be extended by the direction of the court.”