Kotak Mahindra Bank (KMB) management has announced that the RBI has allowed promoter group (Uday Kotak) to own a 26% stake in the banks (currently 29.96%) while voting rights will remain capped at 15%.
Promoters now just have to sell a 3.96% stake in the bank vs earlier requirement to pare down their stake to 15%.
The RBI notification has capped promoter group voting rights at 20% till 31st March while the same stands altered to 15% from 1st April onwards.
Also, the promoter group shareholding is to be brought down to 26% within 6 months.
The decision is a big positive for KMB as it removes uncertainty. It also enables an increase in the free-float of nearly 4%.
It’s a big victory for Uday Kotak and possibly also for other banks such as Bandhan Bank and NBFCs which may be aspiring to transform into a bank.
For an existing KMB shareholder – a more important thing to watch out now is the increased possibility of inclusion in MSCI Standard indices.
Cap on Foreign Portfolio Investment (FPIs) in the bank go up from 44% currently to 74% from 1st April (unless Kotak Bank starts the procedure to pass a special resolution to cap it below 56% in the next 15 days.)
Last July, the government announced a ceiling on foreign shareholding in all companies which will receive the prescribed regulatory limit approval automatically.
The prescribed regulatory limit for private banks is currently 74% while KMB management has kept it at 45% (They have shareholder approval for 49%).
For KMB to be included in the MSCI index, the FPI limit stands at 55%.
Any MSCI inclusion will provide more cushion to absorb the imminent 3.96% ($1.8 billion as per Thursday’s close price) stake sale and also aid the stock price in the currently weak macro environment.
Meanwhile in Q3 credit growth witnessed continued deceleration growing 10% YoY to Rs 216774 crore. Marginal moderation was seen across all segments with a notable slowdown incorporate (3% YoY) & CV book (5.5% YoY).
Growth in small business and home loans moderated though it still remained better at 14.6% and 20% YoY. CASA accretion remained healthy with 19.6% YoY growth in saving balance and 15.9% YoY growth in the current balance, leading to steady CASA ratio at 53.7%
Net interest income (NII) came in at Rs 3430 crore, up 16.7% YoY, on the back of the improvement of 300 bps YoY in margins at 4.69% (up 8 bps QoQ).
Other income grew 36.3% YoY to Rs.1314 crs. Traction in core fee income remained slower at 8% YoY
Consolidated PAT came in at Rs.2349 crs up 27% YoY, with a non-banking business contributing 32% to consolidated PAT.
Overall performance of subsidiaries remained healthy (including the benefit of reduction in tax rate) with healthy profitability in Kotak Life insurance (up 32% YoY), Kotak AMC (20% YoY), Kotak Securities (29% YoY) and Kotak Prime (34.5% YoY).
GNPA ratio inched up 13 bps QoQ to 2.46% (Rs 5413 crs). NNPA also rose 4 bps QoQ to 0.89%
Net net the bank has been one of the most consistent performers over the years, driven by best in class return ratios & margin profile.
Also, the performance of subsidiaries (life insurance, Broking and AMC) remains strong on growth & profitability, value enrichment remains positive.
The recent news flow is definitely a strong positive for the bank going ahead as it removes significant regulatory uncertainty on the bank going ahead.
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