Bandhan Bank’s branch at Prabhadevi, Mumbai.

Newest Indian Bank Plunges After Regulator Crimps Expansion

(Bloomberg) -- Shares of Bandhan Bank Ltd. plunged by its daily limit after the lender lost its ability to open new branches without seeking approval from the regulator as India’s central bank penalized it for failing to comply with shareholding requirements.

India’s newest lender fell 20 percent to 452.2 rupees at 9:17 a.m. in Mumbai. The bank was unable to bring down the stake of the lender’s holding company to below 40 percent as required under licensing conditions, the company said in an exchange filing on Friday. To meet those requirements, Bandhan is considering cutting its holding company’s stake in the firm by acquiring another entity, CLSA Ltd. said in a note to investors following a call with Bandhan’s management.

Bandhan Bank joins its rivals in getting censured by the Reserve Bank of India for not meeting norms as the nation’s central bank tries to clean up an industry that’s been plagued by $210 billion of stressed assets. Despite support from shareholders, Axis Bank Ltd.’s head Shikha Sharma and Yes Bank Ltd. CEO Rana Kapoor had their terms cut short, after the central bank weighed in. The regulator also rebuffed a method used by India’s richest banker, Uday Kotak, to pare his stake in Kotak Mahindra Bank Ltd. to meet regulatory requirements.

“RBI is being proactive like never before when it comes to ensuring compliance,” said Kranthi Bathini, director of Mumbai-based financial advisory firm WealthMills Securities Pvt. “No violations are left unpunished.”

The central bank also ordered the company not to raise Chief Executive Officer Chandra Shekhar Ghosh’s salary. Kotak Mahindra fell 7.7 percent to 1,054 rupees after the RBI censured Bandhan Bank.

Founders of Bandhan Bank, which sold shares in an initial public offering this year, couldn’t reduce their stake earlier as under market regulator’s rules founders can’t sell their shares for at least a year after an IPO, CLSA said.

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