RBI may examine Kotak Mahindra Bank. Find out why

Posted by Wasim Raza in News
August 7, 2018

The controller of the monetary policy and the centralized banking institution of India, Reserve Bank of India (RBI) may question Kotak Mahindra Bank’s decision to use a wholly new instrument. And that new instrument is non-convertible perpetual noncumulative preference shares (PNCPS) to a set of investors to reduce the promoter stake to less than 20% from 30% in line with the central bank’s rules on ownership in private sector banks.

The Reserve Bank of India may or may not approve Kotak’s use of non-convertible preference shares but will likely to study since, with this, the promoters of other banks are also under pressure to lower their stakes.

What’s aching RBI is that why the bank issued preference shares instead of straight equity shares. On this, the CFO of Kotak Mahindra Bank Jamin Bhatt said these are perpetual, non-convertible not redeemable preference shares which are nonvoting and noncumulative. Means, those holders of these instruments do not have a voting right and the dividend that the shares carry cannot be taken forward to the next year if not paid in one year.

advisorymandi
Advisorymandi

According to Kotak Mahindra, the bank has issued the shares after taking into account Basel III regulations. And RBI regulations say that no special permission is required if the issuance is in line with SEBI rules.

Plus, according to many market experts and analysts, the bank did nothing wrong and is technically on the right side of regulations, however, it is violating the spirit of RBI’s direction to reduce promoter stake in the bank.

In fact, on this the associate director at India Ratings and Research, Udit Kariwala said, “The spirit of the RBI direction was to diversify holdings in the bank which has not happened after the issuance of these shares. It remains to be seen how RBI reacts to this because it will set a precedent for others to follow.”

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