RBI Freezes Bandhan Bank CEO’s Salary, Cancels Permission to Open New Branches

Bandhan Bank. (File photo: Reuters)

Bandhan Bank. (File photo: Reuters)

The RBI took action because the bank failed to comply with promoter shareholding norms. Axis Capital believes this move by the RBI will impact Kotak Mahindra Bank (KMB) as well.

New Delhi: The Reserve Bank of India (RBI) on of Bandhan Bank chief executive officer and managing director Chandrashekhar Ghosh for not complying with the promoter shareholding norms.

Bandhan Bank also cannot open new branches without the regulator's permission.

"RBI has communicated to us that since the Bank was not able to bring down the shareholding of Non Operative Financial Holding Company (NOFHC) to 40 percent as required under the licensing condition, general permission to open new branches stands withdrawn and the Bank can open branches with prior approval of RBI and the remuneration of the MD & CEO of the Bank stands frozen at the existing level, till further notice," Bandhan Bank informed the stock exchanges.

The bank is taking necessary steps to comply with the licensing condition to bring down the shareholding of NOFHC in the Bank to 40 percent and shall continue to engage with RBI in this behalf, it added.

RBI’s licensing norms require a private sector bank to bring down its promoter shareholding to 40 percent within three years of operations.

Previously a microfinance institution, Bandhan Bank is one of the youngest private sector banks in India, completing three years on August 23.

Bandhan went for an initial public offering (IPO) in March this year, which resulted in the promoter holding falling to 82.28 percent from 89.62 percent.

Recently, the bank failed in concluding talks to acquire PNB Housing Finance, which could have helped in bringing down the promoter holding.

Meanwhile, Axis Capital believes this move by the RBI will impact Kotak Mahindra Bank (KMB) as well.

As per RBI mandate, Uday Kotak has to reduce its promoter stake in KMB to less than 20 percent from existing 30 percent. As per the mandate, it has to cut promoter holding to 20 percent of paid-up capital by December 31, 2018, and 15 percent by March 31, 2020.

Earlier, the bank tried to reduce the promoter stake to less than 20 percent by the issuance of perpetual preference shares. RBI, however, did not approve this. Kotak Mahindra Bank continues to believe that it met the requirement (with the PNCPS issuance) and will engage with the RBI to resolve this situation.

Axis Capital, in an investor note, said, “We feel this (RBI restricting Bandhan Bank) will have a negative bearing on Kotak Bank too wherein the promoter shareholding needs to be bought down to 20% (current 30%). The regulator seems to be in no mood to give any leeway/relaxation to any bank and may take penal actions too.”

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