Kotak Bank Moves Court “To Protect Interest” On Preference Shares

Kotak Mahindra Bank Ltd stated on Monday it had challenged in court the central bank’s decision to disregard the issue of preference shares to reduce promoter stake in the private-sector lender, sending shares sharply lower. Uday Kotak, the billionaire lead of Kotak Mahindra Bank, has been asked by the Reserve Bank of India (RBI) to lower his holding in the lender to 20 percent by this year-end, and to 15 percent by March 31, 2020. Uday Kotak directly had a 29.73 percent stake in the lender, as of September 30, 2018, according to Bombay Stock Exchange data.

Kotak Mahindra, which in August accomplished an issue of perpetual non-convertible preference shares (PNCPS) in a bid to cut promoter stake, was told by the RBI that this did not meet the central bank’s promoter-holding dilution requirement.

The bank said it had not heard from the RBI on the issue after clarifying that PNCPS were a part of the paid-up capital of the bank, and also the legal basis on the dilution of shareholding.

“Given the milestone of December 31, 2018, the bank has been left with no option but to protect its interest,” the lender proposed in a statement. Kotak Mahindra Bank’s move against the RBI comes days after billionaire investor Warren Buffett’s Berkshire Hathaway Inc was rumored to be in talks with the bank to pick up a 10 percent stake. The lender’s shares had closed 8.4 percent firmer following the report on Friday.

The bank said it was unaware of any plans of Berkshire investment.

The stock fell as much as 7.2 percent in its biggest daily drop since October 1 after Kotak Mahindra’s announcement on Monday.