The Reserve Bank of India (RBI) on Friday has imposed a penalty of Rs 2 core on Kotak Mahindra Bank for not sharing information on promoter stake.
The central bank said that the action is based on the deficiencies in regulatory compliance after the bank was directed by RBI to furnish information about details of the shareholding held by its promoters and to submit details of the proposed course of action of the bank for complying with the permitted timeline for dilution of promoter shareholding.
In response to RBI's penalty, Kotak Mahindra Bank said, "The Reserve Bank of India has levied a penalty of Rs two crore on the Bank. The penalty is for an alleged failure to comply with RBI's purported directions to submit details of the promoter shareholding, the proposed course of action/ plans/ strategy by the Bank, and not conveying the commitment of the Bank for achieving promoter dilution as per the timelines stipulated. The Bank is examining the order."
On December 10, 2018, Kotak Mahindra Bank had moved the Bombay High Court challenging an RBI directive of August 13, 2018, which had directed it to dilute the promoter's shareholding from around 30 per cent to a maximum of 20 per cent of its paid-up voting equity capital by December 31, 2018 and to 15 per cent by March 31, 2020.
In August 2018, the promoters had tried to lower the holdings through a complex perpetual non-cumulative preference shares sale but it did not make the regulatory cut.
Through this sale, Uday Kotak, the founder and main promoter of Kotak Mahindra Bank, had said that his family's stake was coming down to 19.70 percent from about 30 percent.
However, within a few days, RBI had rejected the stake dilution method adopted by Kotak saying it did not meet its regulatory norms, something the private sector lender contested in its reply to the regulator.
Following this, in an unprecedented move, Kotak Bank had on December 10, 2018, taken the regulator to the Bombay High Court challenging the December 31, 2018 deadline to dilute the stake.
In the petition, the bank is seeking a widening of the definition of the paid-up equity capital to include these preference shares as well beyond the present equity voting capital. It is also questioning the laws related to the capping of the shareholding at a more fundamental level, asking if there is a legal basis to have shareholding caps.
According to the bank's plea, the RBI had initially asked it to only dilute promoter shareholding of its paid-up capital. However, the impugned letter sought dilution of paid-up voting equity capital.
As per the plea, after receiving the letter from RBI, the bank wrote two letters -- one on September 4, 2018, to the RBI and the other on September 24, 2018, to the RBI governor -- seeking clarification, but did not get any reply.
"Even assuming that the RBI has the power to issue directions requiring reduction of promoter shareholding in banking companies, the said power can only be exercised, and has always been exercised by the RBI, with reference to the petitioner's paid-up capital and not in relation to its paid-up voting equity capital," the petitioner has argued.
The bank has requested the court to quash and set aside the RBI directions on equity dilution. It has also pleaded the court to declare that the reduction of promoter shareholding should be considered complied with if it is achieved as a percentage of the paid-up capital and not the paid-up voting equity capital of the bank.
(With inputs from PTI)