If you thought that mysteries and thrillers had only guns and thighs there is something you definitely need to add a few more reasons that will give every adrenaline-pumping moment a boost… fiscal policy, financial decision-making, and preferential treatment to a few. Yes, the world that we live in, also has its dose of all the ingredients of a pot-boiler, if certain figures are to be believed. If a recent post in ‘The Wire’ has got it right, RBI has done all that would make even the most memorable villain in thrillers get up and applaud. If the opinion-leader in the world of Indian banking arena goes ahead and awards regulatory relaxation to the promoters of Kotak Mahindra Bank, then they have done everything to stimulate the creative juices of a thriller writer.
Revised guidelines for licensing of Private Banks issued by RBI on 22 February 2013 indicate that the promoter should have a maximum shareholding of 15% within 12 years from the date of commencement of business of the bank. Uday Kotak resisted dilution of his holding to 15% with a reasoning that RBI’s new norms could not be applied in retrospect as he was given the license under RBI’s January 3, 2001 policy which said: ‘The promoters’ contribution shall be a minimum of 40 per cent of the paid-up capital of the bank at any point of time.’
Differential Treatment by the Regulator resulting in Losses to non-promoter shareholder?
Where promoters are individuals, the RBI uses its discretion to compel banks to reduce their stake. In certain banks, such as the IndusInd Bank which was established in 1994, the promoters reduced their stake to 15% (p 38 annual report) by March 31, 2016, i.e., within three years of the RBI’s revised guideline.
A similar story is seen to have repeated in Lakshmi Vilas Bank, an old private sector bank, where the promoters’ stake was reduced to marginally below 9% by March 31, 2018.
In Yes Bank too, which received its banking license at the same time as KMB, the promoters’ stake was brought down to 20% by March 31, 2017 and has remained at that level as the promoters are contesting certain issues in court.
But in the case of Kotak Mahindra bank, the RBI repeatedly allowed Uday Kotak an elongated timeline to reduce his stake. Thus they were allowed to go from 20% by March 31, 2018 to 10% by March 31, 2020 through a circular dated June 27, 2012. Subsequently, a further relaxation was given by the RBI in a notification dated February 1, 2017, whereby the promoters had to reduce their stake to 20% by December 31, 2018 and 15% by March 31, 2020. In all, that amounts to an extension of five years over the original deadline of March 31, 2015.
Never has the RBI publicly explained why Kotak Mahindra Bank required treatment that was denied to other individual promoters of other private sector banks. The soft corner of the regulator on KMB has led to undue monetary benefits to promoters of Kotak Mahindra Bank to the extent of INR 15,609 Crores.
Introspection Time for the Regulator
The Regulator in the past couple of weeks has put banks like Axis, Yes Bank and Bandhan Bank in the news with its stern decisions. In the case of Yes Bank, the cost of these decisions by RBI has resulted in a loss of INR 44,000 Crore to investors, adversely impacting even the indices values like Nifty and Bank Nifty. On the other hand experts question the stance of RBI and its unending love towards some banks like Kotak. This will erode the trust of investors on RBI in specific and Regulators and economy in general. It is time for RBI to introspect and walk the talk.
Thrillers in real life where banking decision-makers are involved are not the sort that any reader looks forward to. Fiscal policies need to break away from trying to be adventurous and just follow the simple Gandhian principal of doling out similar treatment to all.
29 September 2018