RBI Penalises Kotak Mahindra Bank For Not Meeting Ownership Guidelines
RBI levies Rs 2 crore penalty against Kotak Mahindra Bank for not meeting ownership guidelines
The Reserve Bank of India has levied a Rs 2-crore penalty on private lender Kotak Mahindra Bank Ltd. for not meeting the regulator’s bank ownership guidelines.
In a statement on its website, the RBI said that Kotak Mahindra Bank had been directed to furnish information about details of the shareholding held by its promoters. It had also been asked to submit details of the proposed plan for dilution of promoter shareholding. Subsequently, the bank was directed to convey its commitment to achieve the dilution as per the timelines stipulated, the RBI said.
However, the bank failed to comply with the directions and a show-cause notice was issued.
After considering the reply received from the bank, submissions made by the bank during the personal hearing and the documents submitted by it, RBI came to the conclusion that the bank had failed to comply with the directions issued by RBI and decided to impose monetary penalty on the bank.RBI Statement
Kotak Mahindra Bank, in a response, said it is examining the order.
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The Ownership Tussle
The tussle between the RBI and Kotak Mahindra Bank started in 2008, five years after the private sector lender had received its licence. The banking regulator had written to the bank seeking details of how the bank’s promoter Uday Kotak was going to reduce his stake in the bank to 10 percent or below.
Things came to a head in 2017, when the RBI wrote a letter to the bank with a timeline by when Kotak Mahindra Bank must achieve dilution of promoter stake. In its letter, the RBI said that by March 31, 2020, the promoter stake must come down to 15 percent or below. In August 2018, the regulator also did not permit the bank to reduce promoter stake by issuing perpetual non-cumulative preference shares, since it did not fit with the RBI’s guidelines.
Eventually, Kotak Mahindra Bank took the extreme step of challenging the RBI in court. A decision in the case is still pending.
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No Material Impact
The penalty of Rs 2 crore will have no material impact on the lender. Also, unlike in previous cases, the RBI has not imposed any business restrictions on Kotak Mahindra Bank.
In September 2018, the RBI had penalised Bandhan Bank for not meeting its licencing conditions pertaining to promoter ownership. In Bandhan’s case, the RBI had said that the lender will not be allowed to open fresh branches till further notice. It had also said that the remuneration to the bank’s chief executive officer CS Ghosh would be frozen at the current level, until the RBI gave a go ahead. The RBI finally removed the restrictions on branch expansion in December 2018.