The Reserve Bank of India (RBI) has allowed Life Insurance Corporation of India (LIC) to increase its holding in Kotak Mahindra Bank up to 9.99% from the current 4.96%. 

The approval comes immediately after the RBI finalised new norms on ownership of private banks. Last week, the central bank accepted an internal working group’s recommendation to allow increase in stake for non-promoter to 10% and promoter to 26% in a private bank.

 LIC would have required RBI permission if it were to take its holding in Kotak Mahindra Bank to over 5%, as per regulatory norms. So this would act as an enabling provision to LIC, according to an analyst.

 Kotak Mahindra Bank said it has been informed by LIC of RBI’s stake increase approval, which is valid for one year.

 This is subject to compliance with the provisions issued by the Securities and Exchange Board of India (SEBI), provisions of the Foreign Exchange Management Act, 1999 and any other guidelines/regulations and statutes, as applicable, the bank said.

Uday Kotak and family hold 26% in the bank while Canada Pension Plan Investment Board has 6.37%, as of data available till September 30, 2020.

 On November 26, the RBI accepted 21 out of the 33 recommendations submitted by an internal working group on ownership and corporate structure for Indian private sector banks. While staying silent on the entry of corporates into the banking space, the regulator accepted the recommendation to up the cap on promoters’ stake in the long run of 15 years to 26%, from 15% at present. This stipulation will be uniform for promoters. Thus, promoters who have diluted their holdings will be permitted to raise it to 26%.  As per the existing rules, private bank promoters have to lower their holding to 40% in three years, 20% within 10 years, and 15% within 15 years of obtaining a banking licence.

“The promoter, if he/she so desires, can choose to bring down holding to even below 26%, any time after the lock-in period of five years," RBI said.

 Another beneficiary of this new ownership norm will be the Hindujas who want their promoter holding in IndusInd Bank to increase to 26% from the current 16.54%. The upping of the stake will likely be executed in tranches.