On Monday, shares of Kotak Mahindra Bank rose as much as 3.22 percent to Rs 1,224.5 apiece on NSE on its plans to raise equity capital.
On Sunday, the private lender informed the stock exchanges that it will hold a board meeting on 22 April to discuss plans to raise equity capital through private placement, follow-on public offering (FPO), Qualified Institutions Placement (QIP) or a combination of these.
"A meeting of the Board of Directors of the Bank is scheduled to be held on April 22, 2020 (Wednesday) to consider raising of equity capital by the Bank through private placement, follow-on public offering (FPO), Qualified Institutions Placement (QIP) or through a combination thereof, as may be considered appropriate, subject to shareholders' approval and governmental/regulatory/statutory approvals and requirements, as applicable," the bank said.
Equity capital is a way for businesses to raise funds by selling shares of the company. As Kotak Mahindra Bank did not mention in its the reason behind the need to raise funds amid a highly volatile market, it is being assumed by various media reports that the step is likely taken to enable a stake sale from the promoter to comply with regulatory requirements.
The bank's promoter, billionaire Uday Kotak, is required to reduce his stake in the bank to 26 percent by August 2020 from his currently held share of about 30 percent as per RBI's orders.
As per RBI's rules, private sector bank promoters are required to dilute their shareholding to 15 percent within 15 years of starting operations as the diverse ownership would prevent a concentration of power and lead to better governance. This also allows foreign investors to seek partial ownerships in Indian private banks through QIPs and private placement routes.
Kotak Mahindra Bank had a 13-month-long court dispute with RBI on promoter shareholding which ended in January 2020 with the central bank allowing Uday Kotak's stake to be reduced to 26 percent by August on the condition that his voting rights would be capped at 15 percent irrespective of his level of ownership.