By Rahul Satija8 June 2019, 17:50 GMT+5:30
- Reserve Bank of India pushing to reduce bank founders’ control
- Kotak is contesting ownership rules in Bombay High Court
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India’s central bank fined Kotak Mahindra Bank Ltd. for failing to comply with its shareholding rules, escalating a five-year dispute between the lender’s billionaire founder and the regulator.
The Reserve Bank of India imposed a penalty of 20 million rupees ($300,000) on the Mumbai-based company, according to a statement on Friday. Uday Kotak, who holds nearly 30% of the bank, has missed multiple deadlines to reduce his stake to below 20%.
The penalty is part of the central bank’s efforts to reduce the influence of founders in banks to improve corporate governance. Kotak is contesting the shareholder restrictions in the Bombay High Court.
“The fine of 20 million rupees is insignificant but the risk of the RBI placing restrictions on the bank has gone up substantially,” said independent analyst Hemindra Hazari, who writes for the Smartkarma platform. “If that happens, every stakeholder will pay because the promoter didn’t comply with the rules.”
The central bank has been in a battle with Kotak since 2014 when it said he failed to meet the first deadline to reduce his stake.