HC refuses relief to Kotak over stake cut

MUMBAI: The Bombay high court has refused to stay a directive of the Reserve Bank of India (RBI) to the promoters of Kotak Mahindra Bank Ltd, including its owner Uday Kotak, to lower their stake in the bank by December 31.

The private sector lender had moved the high court after RBI rejected the bank’s proposal to issue perpetual non-convertible preference shares in August to comply with promoter stake rules. Uday Kotak, who owns about 30% in the bank, has been asked by the RBI to cut his holding to 20% by the end of this year, and to 15% by March 2020.

While the next hearing on the case has been scheduled for January 17, Monday’s decision by the court is likely to force Kotak’s hand on the promoter’s stake issue. Kotak has two weeks to comply with the RBI directive or face penal action.

Senior counsel Venkatesh Dhond, who appeared for the RBI, said promoter stake dilution is aimed at ensuring that voting power is not concentrated in the hands of a single group and that all banks have complied with the rule. “We have issued a letter to the bank in August, but now when the deadline is approaching, the bank has come to the high court seeking a stay,” he argued.

Darius Khambata, the lawyer representing Kotak Mahindra, said: “In the past, the RBI asked the bank to only dilute promoter shareholding of its paid-up capital. However, the impugned letter sought dilution of paid-up voting equity capital. “After receiving the letter, the bank wrote two letters—one to then RBI governor and the other to the RBI board seeking clarification. But, we haven’t got any response.”

Khambata pleaded before the court that “the RBI must not take any coercive step post December 31, the deadline by when the promoters have to reduce their stake to 20%”. “We are the only private sector bank owned by an Indian,” Khambata said on behalf of Kotak Mahindra. “If we go by the RBI mandate, then it will be difficult to find any domestic investor and hence the only option would be to bring in foreign investors.”

After hearing arguments from both sides, the division bench of the Bombay high court comprising Justice BP Dharmadhikari and Justice SV Kotwal said the RBI is a responsible regulator and the court would not direct it to do anything at this stage.