The Bombay High Court denied granting stay on the 31 December deadline for Kotak Mahindra to dilute promoter stake. Shares of the lender fell as much as 3.33 percent to Rs 1,214.10 a piece after the verdict. The next hearing is scheduled for 17 January.

The Reserve Bank of India in its letter dated 13 August had asked Kotak Mahindra Bank to reduce its promoter (Uday Kotak) holding as a percentage of the paid-up voting equity capital to 20 percent 31 December and 15 percent by 31 March 2020 from the existing 29.73 percent.

The central bank rejected the lender's means to lower Uday Kotak's stake, that is, by selling one billion preference shares to domestic institutional investors and companies. RBI ruled that nonconvertible perpetual noncumulative preference shares (PNCPS) do not form a part of the common equity stock held by a bank according to Basel III classification, and selling these would not result in dilution of control.

The bank challenged the regulator's decision in court last week. "RBI has today communicated to us that our perpetual non-cumulative preference shares (PNCPS) issuance does not meet their promoter holding dilution requirement. We continue to believe that we have met the requirement and will engage with the RBI in this behalf," Kotak Mahindra Bank had said in a BSE filing.