
Recently, Uday Kotak is in news and a controversy has been created related to his contribution to Electoral Bonds. Let’s understand the controversy in simple manner.
Uday Kotak, a notable figure in the banking sector, faced a prolonged conflict with the Reserve Bank of India (RBI) regarding his stake in Kotak Mahindra Bank. RBI regulations stipulated that a promoter’s stake in a private bank should not exceed 15% within 12 years of the bank’s inception.
Dispute with RBI and Legal Battle:
In 2003, Kotak Mahindra Finance Limited, led by Uday Kotak, obtained a banking license from the RBI. However, by 2013, the promoter group’s stake in Kotak Mahindra Bank remained at 44.96%, well above the prescribed limit. Efforts to reduce this stake were insufficient, leading to regulatory intervention.
Court Proceedings and Settlement:
In December 2018, Kotak Mahindra Bank contested the RBI’s rejection of its proposal to dilute promoter shareholding, leading to a legal battle. Over a year later, in January 2020, a settlement was reached, allowing the bank to maintain a promoter stake of 26% within six months, rather than the initially mandated 15%.
Political Contributions by Infina Finance:
During the legal dispute, Infina Finance Private Limited, a Kotak group entity, made substantial political contributions. Electoral bond data revealed donations totaling Rs 35 crore to the Bharatiya Janata Party (BJP), with significant amounts donated just before key announcements regarding the settlement and regulatory decisions.
The sequence of events sparked debates regarding the influence of political contributions on regulatory decisions. While some viewed it as a victory for Kotak, others downplayed the connection between donations and regulatory actions.
RBI’s Tenure Limit Proposal and Extension:
In June 2020, the RBI proposed limiting the tenure of promoter CEOs of banks to 10 years. Uday Kotak, having served as CEO for 17 years, faced uncertainty. However, in December 2020, the RBI granted him a three-year extension, allowing him to continue leading Kotak Mahindra Bank.
Implementation of Revised Policies and Resignation:
Revised policies in April 2021 allowed for exceptions to the tenure limit, enabling Uday Kotak to remain as CEO and Managing Director of Kotak Mahindra Bank until September 2023. He eventually resigned from the position, concluding a significant chapter in the banking sector.