In Affidavit, RBI Says Kotak Plea on Ownership Rules Reflects Need for Regulation

The central bank has also added that if the Bombay HC rules in favour of the private sector lender, it could erode the regulator's autonomy.

New Delhi: The legal stand-off between the Reserve Bank of India (RBI) and Kotak Mahindra Bank (KMB) was kicked up a notch recently, with the central bank filing an affidavit in the Bombay high court that says if a plea by the private sector lender was accepted, it would set an “unhealthy precedent”.

The tussle between KMB and RBI, over a regulatory requirement that would force billionaire founder Uday Kotak to reduce his stake in the private sector lender, has gone back-and-forth between both parties for over ten years now.

The stand-off moved from private correspondence to the courtroom in December 2018, when the central bank threatened to penalise Kotak over its decision  to use perpetual non-cumulative preference shares as a means of diluting promoter holding.

The private sector lender then moved the high court against the RBI’s actions, saying that it was “without jurisdiction, wholly illegal, ultra vires the BR [Banking Regulation] Act, manifestly unreasonable, arbitrary, unfair, without the authority of law, and unconstitutional…”

In response to KMB’s petition, the RBI has filed a reply in court that warns that its autonomy as a regulator could be undermined if reliefs are granted to the private sector lender.

Also read: Kotak-RBI Tussle Also Has Consequences for Control of the Overarching Group

The central bank has also highlighted how the petition has been filed by the bank and not its promoters.

“The petitioners before this hon’ble court have no standing to question the RBI’s policy decisions at issue. Those decisions, if at all, seek to regulate shareholding rights of Petitioner No 1’s promoters. These promoters have not filed any petition. They therefore have no issue with their holding being regulated in the manner provided for by the RBI,” the central bank’s affidavit notes.

“The very fact that these petitioners have come before this Honble Court and not those whose rights in property the petition claims shall be affected by the impugned communications shows first-hand the need to make private banks more independent and reflective not of the interests of one individual or family but all stakeholders, whose voices must be heard in their (the banks’) running,” it adds.

The central bank’s position in this regard, and its affidavit, was first reported on by Bloomberg.

In the interests of public debate on the RBI’s ownership rules – which have been discussed extensively – The Wire is reproducing a copy of the central bank’s reply to Kotak below.

RBI Reply to Kotak Writ by The Wire on Scribd

The court will hear further arguments in the case on April 1, 2019.