Kotak Mahindra Bank has questioned the Reserve Bank of India’s authority to seek reduction of stake by any investor – promoter or otherwise – in a lender.
The Banking Regulation Act does not empower the RBI to require any bank to reduce any person’s shareholding or otherwise require any person to lower their stake in a bank, it said in a rejoinder to the central bank’s reply in the Bombay High Court, which ET reviewed.
Sections 12 and 12-B of the Banking Regulation Act “form a complete code on a matter of shareholding and voting rights in a bank and therefore circumscribe the powers of the RBI in this regard,” the bank said.
India’s second-largest private lender by market capitalisation has contested the RBI’s directive to cut the promoters’ shareholding to 20% of paid-up capital by December 31, 2018, and 15% by March 31, 2020. Uday Kotak, MD and promoter of the bank, held a 29.72% stake in the lender as of December 31.
The RBI had rejected the bank’s proposal in August 2018 to issue perpetual non-cumulative preference shares to lower the promoter’s stake to 19.7%. The central bank had said the objective of reducing the promoter shareholding was to prevent concentration of power and to make private banks more democratic.
The RBI appears to have conflated the concepts of economic ownership and control, Kotak Mahindra Bank said in the rejoinder, adding that this approach ignored provisions in the Act that specifically regulate voting rights of all shareholders under section 12 (2) and deal with the concentration of control.
The bank sought to challenge the legal validity of the RBI’s orders, saying they were issued without authority of law and it was not the regulator’s prerogative to determine policy.
In its reply in the Bombay High Court, the central bank had alleged that by seeking relief, the bank will make inroads into the RBI’s autonomy and assume the mantle of the regulator.
This assertion is not only unreasonable and incorrect but amounts to the RBI contending that it is entitled to carte blanche powers irrespective of the provisions of the Act, Kotak Mahindra Bank said in its rejoinder.
It cannot be the RBI’s case that it has “unlimited and unimpeachable powers” in matters related to Indian banks and operates outside of statutory and constitutional limitations, Kotak said.
“Kotak Mahindra Bank has always respected the RBI. The actions of the bank have been in accordance with the RBI’s communications, the needs of the bank and the law.
Having said this, we are unable to comment any further as the matter is subjudice,” Rohit Rao, the bank’s chief communication officer, said in an emailed response to ET.
Shares of Kotak Mahindra Bank rose 2.6% to Rs 1,342.85 at the close on the BSE, giving it a market capitalisation of Rs 2,56,220 crore.