Kotak Mahindra Bank: RBI allows Uday Kotak to Hold 26% Stake

Kotak Mahindra Bank’s

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.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.