Billionaire Kotak Ordered to Lower Stake in His Bank to 40%

Billionaire Uday Suresh Kotak was ordered by India’s central bank to sell shares worth about 24 billion rupees ($406 million) in Kotak Mahindra Bank Ltd. (KMB) by the end of September.

Kotak, 55, will have to cut his ownership in the Mumbai-based lender, which he founded in 2003, to 40 percent from his current holding of 43.58 percent, the company said in an exchange filing today. The tycoon, who is also vice chairman of Kotak Mahindra, will then have until the end of 2016 to cut his investment to 30 percent, the filing showed.

The Reserve Bank of India, which is also the nation’s banking regulator, ordered Kotak in 2012 to reduce his stake to 20 percent by March 2018 as it tries to separate the management and ownership functions at the nation’s lenders to improve corporate governance.

“The stake sale won’t have any material impact on investor sentiment,” Nitin Kumar, a Mumbai-based banking analyst at Quant Broking Ltd. said by phone today. “With market sentiment improving and management being bullish on growth, Kotak won’t find it difficult to pare his stake at a good valuation.”

Kotak Mahindra had a net interest margin of 4.9 percent as of March 31, the highest among Indian banks, exchange filings showed. The worst declines in asset quality are behind the bank and it expects higher growth in loans and profitability in coming months, Chief Financial Officer Jaimin Mukund Bhatt told reporters on April 30.

Shares of the lender lost 0.1 percent to 860.1 rupees as of 11:01 a.m. in Mumbai, while the 12-company S&P BSE Bankex Index sank 1.5 percent. The stock climbed 19 percent this year, valuing the company at 665 billion rupees. Uday Kotak’s current stake is worth about 290 billion rupees.

Kotak Mahindra has 605 branches and outstanding loans of 530 billion rupees as of March 31, according to an April investor presentation from the company.

To contact the reporter on this story: Anto Antony in Mumbai at aantony1@bloomberg.net

To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net Darren Boey, Sam Nagarajan

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