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Billionaire Kotak Ordered to Reduce Stake in His Bank to 20%

Billionaire Uday Suresh Kotak was ordered by India’s central bank to reduce his stake in Kotak Mahindra Bank Ltd. by more than half to 20 percent in less than six years.

The Reserve Bank of India will consider whether he needs to further cut the holding to 10 percent over the two years following the March 31, 2018, deadline, according to a statement filed by the Mumbai-based bank to the exchange. Kotak currently has about 45.2 percent, it said.

India’s central bank is developing guidelines for new licenses that may force controlling shareholders in existing rivals to also reduce their stakes. Kotak, 53, founded his bank and is currently vice chairman of Kotak Mahindra.

“The time provided for bringing down the promoter’s stake is adequate,” said Dolly Parmar, a Mumbai-based analyst at IFCI Financial Services Ltd. “There could be similar directives to other lenders including ING Vysya Bank as the regulator tries to do away with concentrated holdings in the lenders.”

Kotak Mahindra fell 1.7 percent to 570.75 rupees as of 12:23 p.m. in Mumbai trading today, while the 14-company Bankex Index gained 0.9 percent. The stock has advanced 32 percent this year, giving Kotak’s stake a valuation of about 192.5 billion rupees ($3.4 billion).

The lender, which received its banking license in 2003, now has about 355 branches and more than 10 million customers. It is India’s fourth-largest non-state bank by assets, according to data compiled by Bloomberg.

India may issue guidelines on new licenses after parliament passes a banking regulations amendment bill, RBI Deputy Governor Anand Sinha said in an interview with Bloomberg-UTV in April. Those guidelines will also include limits on ownership and foreign shareholding, the television channel reported in August 2011.

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