Refusing to back off, Uday Kotak says his bank meets ownership norms

MUMBAI: Billionaire banker Uday Kotak has told the Bombay High Court that he differs with the regulator’s interpretation of promoter holding in banks, and that the owners’ stake in Kotak Mahindra Bank as a percentage of paid-up capital was in line with rules.

Kotak also pointed out that the RBI never communicated with the promoters on the issue of shareholding. He made the strongly worded submission in an affidavit in the case challenging the RBI’s directive asking the promoters of Kotak Mahindra Bank to reduce their holding.

“Over the years, the promoter shareholding reduction was communicated by the RBI to the bank as a percentage of paidup capital,” he said in the affidavit. “There has been no communication by the RBI to the promoters on this issue for the past 16 years since the bank got its licence in 2003.”


ET has seen the affidavit, which was submitted to the Bombay High Court on April 15.

DISPUTE ON SINCE 2014
“The 2001 guidelines and the licence require promoter shareholding to be a percentage of the paid-up capital of the bank,” Kotak said.

The central bank has been engaged in a dispute with Kotak since 2014 for having failed to meet the first milestone stake reduction. In August 2018, the promoters sought to lower their stake to 19.7% through the sale of perpetual non-cumulative preference shares. The plan was rejected by the RBI. It’s said to have reasoned that the instruments were interest-bearing and derivative in nature with a call option after five years and therefore not equivalent to equity. The RBI wants promoters to reduce their stakes in banks to ensure they don’t retain untrammeled control and to promote professional management.

The dispute has arisen because of RBI’s reading of the law, according to the affidavit.

“Correspondence ensued between the RBI and the bank, giving rise to a difference of opinion on the matter of RBI’s interpretation of its requirement,” said the affidavit. “I verily believe that there has been a compliance with the RBI’s requirement.”

The bank had moved the court on December 10 last year, challenging the RBI directive of August 13, 2018, which had instructed it to dilute the promoter shareholding from around 30% to a maximum of 20% of its paid-up voting equity capital by December 31, 2018, and to 15% by March 31, 2020. The central bank had rejected Kotak’s challenge.

“The reliefs sought in the petition, if granted, shall result in making inroads into the RBI’s autonomy, and to permit the petitioners and others to become regulators of their own selves,” the RBI had said.

Kotak Mahindra Bank said it wouldn’t be able to add to the contents of the affidavit.

“We believe that the actions of Kotak Mahindra Bank have been in compliance with the RBI’s communications, and in accordance with the needs of the bank and the law,” bank spokesperson Rohit Rao told ET. “We are unable to comment any further as the matter is sub-judice.”