The Bombay High Court declined to provide any interim relief to Kotak Mahindra Bank in its challenge of the Reserve Bank of India (RBI) order barring its promoter-managing director Uday Kotak from reducing his stake in the bank through a preference share sale.
The development led to a fall in Kotaks share price on Monday and has opened the possibility of the bank being fined by the regulator for noncompliance of its directions.
Kotak shares fell 2.5 per cent to end at Rs 1,224 per share on Monday, even as the benchmark 30-share Sensex rose 0.85 per cent. With the decline in relief, Kotak is likely to be on the wrong side of the regulatory deadline after December 31. The next date of hearing is on Janaury 17.
However, a person familiar with the banks thinking said a hurried share sale to reduce promoter stake is out of question. “As far as the bank is concerned, they believe that they are in compliance with the RBI deadline after the preferential issue. They will wait for the direction of the court. The RBI can fine them for missing the deadline, but I think it will all hinge on the final high court order which may take a few months to come,” this person said.
In the hearing on Monday, the judge asked RBI to file a reply on Kotaks contention regarding its preferential issue. Kotaks counsel said the bank hopes that there is no coercive action till then to which the judge refused to give any assurance.
The RBI timeline set a few years ago had directed Kotak Mahindra to trim promoter shareholding in the bank to 20 per cent by December 31, 2018, and further to 15 per cent before March 31, 2020. In early August, Kotak sold Rs 100 crore of non convertible perpetual non-cumulative preference share (PNCPS) to a bunch of domestic institutional investors and companies raising Rs 500 crore which reduced promoter Uday Kotaks stake to 19.70 per cent from 30 per cent. The sale ensured that the bank did not raise unwanted equity capital and at the same time complied with RBI directions on promoter holding.
However, RBI shot down the proposal because it did not meet the central banks promoter holding dilution requirement. Earlier this month, Kotak challenged RBIs order in the Bombay High Court, in a rare instance of a bank taking its regulator to court.