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Kotak Mahindra Bank vs the RBI: Smoking the peace pipe

Updated : January 31, 2020 10:42 AM IST

Kotak Mahindra Bank has all but solved its shareholding tussle with RBI. The bank said that the RBI has accepted a proposal that requires promoter Uday Kotak to cut his stake from 30 percent to 26 percent, also his voting rights would be cut to 15 percent from April.

Moreover, Kotak Mahindra Bank has also withdrawn its case against the RBI from the Bombay High Court.

The court case was a disturbing point because no regulated entity ever likes to be in such a confrontational position with the regulator. The RBI was not sure what the court might say. So, clearly both sides were wanting an amicable out of court agreement.

On the face of it, it does look like it was an extremely sweet deal for Mr. Uday Kotak because he has to bring down his stake by 4 percentage points and then he is done. The remaining reduction in stake will only happen when Kotak Bank’s equity expands – that is a good deal compared to forcible selling off 15 percent of the stake or half your stake.

However, one should remember that this should not be seen as too fair to Kotak and too unfair to Bandhan Bank. A lot of RBI insiders were admitting even earlier that the original licence agreement of Uday Kotak did not mention bringing down his stake to 15 percent, whereas that in case of Bandhan Bank was written into the licence. The two cases are not comparable. So, this shouldn't be looked at as an unusual favouritism to Uday Kotak but in fact, the letter of the law may even be support his case.

However, the market is running wild with imaginations on potential merger and acquisition (M&A), so that Mr. Kotak’s stake comes down. However, investors and traders need to be very careful of jumping to conclusions.
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