The Reserve Bank of India. Photo: AFP
The Reserve Bank of India. Photo: AFP

The shares of India’s second largest private bank by market capitalization Kotak Mahindra Bank dropped nearly 3% in early trade after Reserve Bank of India (RBI) rejected the way the bank promoter Uday Kotak diluted his stake. At 11.33 am it was trading at 1,253.10 rupees (down 3.04%) in the National Stock Exchange, after opening at 1,293 rupees.

Kotak had sought to lower his stake to 20%, as directed by the central bank, by selling non-convertible perpetual non-cumulative preference shares (PNCPS) to a group of investors. The ruling to lower his stake to 20% has to be met by December.

On August 2, bank founder Kotak sold 1 billion of the preference shares to domestic institutional investors and companies. The private lender insists it has complied to the norms and “will engage with the RBI” on this issue, Economic Times reports.

However the RBI contended that Kotak Mahindra Bank‘s preferential issue does not meet the dilution norms.

As part of the RBI’s guidelines for new bank licences released four years ago, it had stipulated that the promoter’s stake in banks should be brought down to 20% by December 2018 and further reduced to 15% by March 2020. The aim of these measures was to diversify shareholdings to reduce promoter control in a banking entity.