RBI asks promoters of private banks to cut stake

After Kotak Mahindra Bank, promoters of other private sector banks who have a shareholding of over 15 per cent of the capital have been asked to reduce stakes in their respective banks, according to an RBI official.

“Consistent with our regulatory requirements, all banks with promoter stake over the mandated holding as prescribed by the RBI have been asked to reduce it in their respective banks,” an RBI official told Business Line .

Kotak Mahindra Bank’s promoter group entity Kotak Trustee Company Pvt Ltd on Friday announced that it sold around 2.5 crore shares amounting to around 3.24 per cent shareholding in the bank.

The private sector lender had earlier received a communication from the RBI to bring down its promoter shareholding to 40 per cent by September 30, 2014. Post this share sale, the shareholding of the promoters was reduced to 40.33 per cent from 43.58 per cent.

Uday Kotak, who holds 39.76 per cent in Kotak Bank, needs to further reduce his stake to 30 per cent by December 31, 2016.

Experts feel this is a directive set for other banks too.

According to Ashvin Parekh, Advisor at Ernst and Young, “This is a directive set by the RBI and we see this as an important reform. The market is also conducive for banks to look at this opportunity. Also, the need for more capital to meet the increasing loan demand, going ahead, may also make it convenient for stake reduction.”

The central bank wants to diversify promoter holding in banks from individuals, make it more institutionalised, and improve corporate governance, the RBI official said.

Though the country’s largest private sector lender ICICI Bank has no promoter shareholding, other private banks such as Kotak Bank (40.33 per cent), Axis Bank (29.54 per cent), YES Bank (25.55 per cent) and DCB Bank (18.46 per cent) had promoter shareholding above 15 per cent as on March 31, 2014.

Banks such as HDFC Bank and Axis Bank may not be asked to dilute stakes immediately as the promoters’ stake include diversified set of individuals and investors.

As on March 31, 2014, HDFC Bank’s promoter shareholding stood at 22.64 per cent, of which, HDFC owns 16.39 per cent and HDFC Investments 6.25 per cent.

As for Axis Bank, total shareholding by promoters is at 29.54 per cent, including SUUTI at 11.70 per cent, while the rest is owned by public sector firms such as Life Insurance Cooperation of India and General Insurance Cooperation.

Recently, an RBI-appointed committee headed by former Axis Bank Chairman PJ Nayak recommended that promoters be allowed to hold 25 per cent stake in private sector banks as against the present norm of 10 per cent. The RBI guidelines on new bank licences issued earlier this year expect promoter stake in these banks to come down to 15 per cent in 12 years from the date of licensing.

For new banks, the guidelines state that the promoter must float a non-operative financial holding company (NOFHC) that would hold 40 per cent of the paid-up capital of the bank for an initial period of five years.