One of India’s youngest lenders Bandhan Bank Ltd has just received a strong rap on the knuckles from the Reserve Bank of India. The central bank has placed restrictions on Bandhan as it failed to lower promoter holding to meet the cap prescribed by the regulator.
The Reserve Bank of India stopped Bandhan Bank from opening new branches unless it seeks the regulator’s approval each time, the microlender-turned-universal bank informed exchanges.
The RBI also froze the remuneration to Managing Director and Chief Executive Officer Chandra Shekhar Ghosh at the current level till further notice.
Bandhan Bank was unable to bring down the shareholding of the non-operative financial holding company to 40 percent within three years of starting operations. The condition was mentioned in the RBI’s February 2013 licensing guidelines.
The bank was granted in-principle approval in April 2014 and began operations a few months later.
Moreover, it has to lower the holding company’s stake in the bank to 20 percent within 10 years of starting the business and to 15 percent within 12 years.
RBI’s strictures will prompt a change in the bank’s expansion plan for the year, said a senior bank official on the condition of anonymity. The bank has 938 branches and intended to reach 1,000 by end of this year. But it will now review that plan as each branch addition will require special RBI approval.
The bank’s board will meet to decide on options to reduce the stake owned by the non-operative financial holding company, the official said.
Strong Message
Bandhan Bank is the second lender to grapple with RBI’s direction to reduce promoter holding. The regulator last month rejected the tool used by Kotak Mahindra Bank to reduce promoter Uday Kotak’s stake to fulfil RBI-mandated limits.
The bank decided to issue perpetual non-cumulative preference shares to bring down his holding to 20 percent of the paid-up equity capital.
Following the issuance of these shares, the bank’s paid-up capital increased to Rs 1,453 crore from Rs 953 crore, thereby bringing down the promoter’s interest in paid-up capital to 19.7 percent from 30.3 percent.
However, as a percentage of post-issue equity share capital, the promoter group shareholding remained at 30.3 percent since preference shares do not count towards the equity share capital. This did not pass muster with RBI and Kotak now has till December this year to pare his holding to 20 percent and subsequently to 15 percent by March 2020.
By imposing restrictions on Bandhan Bank for having failed to meet the promoter holding threshold, RBI has sent a clear message to Kotak Mahindra Bank as well.
(This story was originally published on BloombergQuint.)
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)