Kotak Mahindra Bank to raise Rs 5,400 crore of equity

Kotak Mahindra Bank on Thursday said it has received board approval to raise equity capital by issuing up to 62 million shares, which, according to the closing price of Rs 865 a share on Thursday on the BSE, amounted to Rs 5,363 crore.

The face value of the share would be Rs 5 each.

The bank could raise the fund through any means the board decides appropriate, including rights issue, private placement, follow-on public offering (FPO), qualified institutional placement (QIP), Global Depository Receipts (GDR), American Depository Receipts (ADR) or through any other permissible mode or a combination of these options.

The Reserve Bank of India (RBI) had issued a directive that Kotak Mahindra Bank Executive Vice-Chairman Uday Kotak would need to reduce his stake in the bank to 30 per cent by June 2017 and to 20 per cent by December 2018. Earlier this month, Kotak had sold 27.6 million shares, reducing his stake in the bank from 33.3 per cent to 31.8 per cent. If the company raises the entire proposed amount, his stake would fall further to around 31 per cent.

The proposed capital dilution works out to 3.37 per cent on the current equity base.

After the capital raising, the bank's capital adequacy ratio would rise to about 20 per cent, said Jaimin Bhatt, president and group CFO, Kotak Mahindra Bank. Its capital adequacy ratio was 18 per cent at the consolidated level in the December 2016 quarter.

The bank notified the exchanges that the fund raised by the bank would be deployed towards pursing consolidation opportunities in the Indian banking and financial services sector, or capitalisation of opportunities available in acquisition and resolution of stressed assets in the banking sector. This included participation in the proposed ‘bad bank’ plan, being widely talked about as a solution to the huge stressed assets problem persisting in Indian banking industry.

Elaborating on consolidation opportunities in the financial sector, Bhatt said, "The group would look at an insurance player with a good distribution tie-up, which would enhance the bank's value. The microfinance space is another area of interest in terms of acquisitions." Kotak has already acquired microfinance company BSS Microfinance in September 2016.

The bank’s internal assessment showed that the bad debt in banking system could be as high as Rs 14 lakh crore, which would need private sector participation to effectively come to a resolution of the problem, Uday Kotak had said on Wednesday.

However, the funds raised could also be deployed towards supplementing additional avenues of organic growth for the bank, such as opportunities in digital expansion, domestic and international lending and so on.

The bank has received approval to start a branch in the Dubai International Financial Centre, which it plans to start in 2017-18, Bhatt said.

The capital raised might also be deployed towards growth of the bank’s subsidiaries, the statement added. It also said the quantum of fund raised had been assessed on the bank’s requirements and for maintaining key performance parameters in the medium and long term in the interest of all shareholders.