What Analysts Made Of Kotak Mahindra Bank-RBI Agreement Over Promoter Shareholding
A security guard stands inside a Kotak Mahindra Bank ATM in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg News)

What Analysts Made Of Kotak Mahindra Bank-RBI Agreement Over Promoter Shareholding

Shares of Kotak Mahindra Bank Ltd. rose the most in four months a day after the Uday Kotak-led lender and the Reserve Bank of India settled their long-standing differences over promoter shareholding.

And that’s exactly what the analysts had expected. This settlement, they said in their research reports, removes one of the key overhangs for the stock and brings the focus back on the private sector bank’s fundamentals. Mongan Stanley sees this as the next near-term catalyst for a possible inclusion in the MSCI Index.

In a notification to stock exchanges on Thursday, Kotak Mahindra Bank said RBI has conveyed its in-principle agreement of the following:

  • Promoters voting rights in the bank to be capped at 20 percent of paid-up voting equity share capital until March 31, 2020.
  • Promoters’ voting rights in the bank to be capped at 15 percent from April 1, 2020 onwards.
  • Promoters’ shareholding in the bank to be reduced to 26 percent within six months from the date of final approval of the RBI.
  • Thereafter, the promoters will not purchase any further paid up voting equity shares’ of the bank till the percentage of promoters’ shareholding reaches 15 percent.

Shares of Kotak Mahindra Bank rose as much as 6.2 percent—the most since Sept. 23, 2019—to Rs 1,729 apiece. That compares with a 0.61 percent drop in the benchmark Nifty 50 Index.

Here’s what brokerages said about the Kotak Mahindra Bank-RBI agreement.

UBS

  • Maintains ‘neutral’ with a target price Rs 1,750 apiece.
  • Stock trades at premium valuations, expect a limited upside from current levels.
  • Overhang gone and is a positive development.

Macquarie

  • Maintains ‘neutral’ with a target price of Rs 1,360 apiece.
  • The promoter group has to offload just 4 percent within six months of final nod from RBI.
  • A major overhang has been taken off; buyer wouldn’t require RBI’s approval as it won’t breach the 5 percent threshold as any person intending to buy 5 percent or more in a bank needs RBI’s nod.

Morgan Stanley

  • Maintains ‘overweight’ with a target price of Rs 1,825 apiece.
  • Revised RBI rules on promoter holding a positive, removes overhang.
  • Another near-term catalyst is a potential increase in foreign ownership limits and a possible re-inclusion in MSCI index.
  • The bank needs to decide by March 31, 2020, whether to allow the FPI limit to rise to 74 percent or lower it to 49 percent.
  • Whether the stock is re-instated in the MSCI index or not in the June review of the index is dependent on what action the bank takes.
  • In case the FPI limit goes to 74 percent, whether the promoter holding comes down to 26 percent via stake sale to FPIs before or after the MSCI review, there will be a passive inflow of $1.6 billion. In case the limit is lowered to 49 percent, there will be no inclusion.

Motilal Oswal

  • This settlement removes one of the key overhangs for the stock.
  • Focus back on the fundamental performance of the bank.
  • The development may have medium-term implications on the minimum promoter shareholding requirements for other banks such as small finance banks and Bandhan Bank Ltd.
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