The government on Tuesday allowed Kotak Mahindra Bank managing director Uday Kotak to continue as the head of bankrupt infra lender IL&FS for one more year.
Kotak was appointed by the government as the head of the lender's board which will help the troubled company come out of difficulties after the state took over the board.
Under the Banking Regulation Act, a bank cannot be managed by any person who is a director of any other company. She can be given a temporary exception for three months or nine months with the concurrence of the RBI.
Accordingly, Kotak was given a go-ahead for three months initially, which was followed up with a nine-month relaxation that ends on Wednesday.
The statutes will "not apply to Kotak Mahindra Bank in so far as it relates to its managing director and chief executive officer Uday Kotak being on Board of Infrastructure Leasing and Financial Services Limited as its non-executive director for a period up to the October 2, 2020", a gazette notification from the government said.
The notification was issued by the Department of Financial Services in the ministry of finance on Tuesday and signed by Joint Secretary Amit Agrawal. It added that the exemption has been granted on the "recommendation" of the Reserve Bank of India.
Terming it as a "historic development", a source claimed this is the first time RBI is giving approval to government to give an extension to a bank CEO to continue as chairman of another financial institution.
It can be noted that Kotak Mahindra Bank has dragged RBI to court over the issue of promoter group led by Uday Kotak's holding in the bank. The Bombay High Court has adjourned the matter by over a year to early 2020.
The Uday Kotak-led board has discovered that there was a complex web of over 250 companies which were a part of the overall IL&FS Group, which has an outstanding of over Rs 94,000 crore to lenders. Over 90 percent of the flagship company's assets are classified as a dud.
The board is trying to keep the company as a going concern by focusing on asset sales and has appointed a resolution professional to steer the way.