Kotak Mahindra Bank is India’s third largest private sector bank by market capitalisation after HDFC Bank and ICICI Bank. As of 31 March 2023, the bank has a national footprint of 1,780 branches and 2,963 ATMs.
In 1998, Kotak Mahindra Finance started its mutual fund arm called Kotak Mahindra AMC. In 2001, OM Kotak Mahindra Life Insurance was established as a 74:26 joint venture between Kotak Mahindra Finance and Old Mutual.
In February 2003, Kotak Mahindra Finance received a banking licence from the Reserve Bank of India. With this, it became the first non-banking finance company in India to be converted into a bank. Kotak Mahindra Finance was then renamed as Kotak Mahindra Bank. At the time, Uday Kotak had 56% stake in the company while Anand Mahindra held 5%.
A few weeks ago, Uday Kotak, in his last shareholder letter as MD of Kotak Mahindra Bank before stepping down at the end of this year, expressed concerns about the impact of over-regulation on the entrepreneurial spirit of financial sector companies.

Uday Kotak said “I feel the financial sector players risk becoming more robotic, curbing the entrepreneurial flair since the fear of making a mistake overrides the joy of creation and development,”. While we need ‘Arjuna’s eye’ on risk management, we must prevent bureaucratization of financial services, he added.
This has displeased the Reserve Bank of India (RBI), which thinks the letter’s reference to “Arjuna’s eye” and other such mentions are a veiled criticism of the central bank governor Shaktikanta Das.
Uday Kotak has been the CEO of the group since 1985. That’s when Kotak Mahindra Finance was set up as an NBFC. And when the RBI allowed NBFCs to transform into banks in 2001, Uday Kotak jumped at the opportunity and applied for a banking licence. And by 2003, Kotak Mahindra became the first NBFC-turned-bank.
The Reserve Bank of India (RBI) has given its final approval to Kotak Mahindra Bank’s proposal on stake reduction in the bank and capping the promoters’ voting rights, the private lender said in a BSE filing on Wednesday.
January 30th, 2020, RBI noted that the bank’s promoters would have to bring down their shareholding to 26% of the paid-up voting equity share capital within six months of receiving the final approval from the central bank.
The regulator also notified the lender to cap promoters voting rights in the bank at 20% of paid-up voting equity share capital until March 31, 2020, and at 15% from April 1, 2020. This means the promoters will not purchase any further paid-up voting equity shares of the bank till his/her shareholding reaches 15%.
As per RBI norms, a bank needs to bring down its promoter shareholding to 40% in the first three years after starting operations. Thereafter, the promoter shareholding needs to come down to 20% in 10 years and 15% in 15 years.
The scuffle between the two started in 2008 when RBI had asked the lender to provide it with the details of Kotak’s plans to reduce his stake to 10% or below. In 2017, the banking regulator again sought the details and insisting on reducing stake again for higher standards in the industry. Following which, in December 2018, Kotak Bank took a drastic step by challenging RBI’s mandate in the court of law.

The court battle Kotak Vs RBI
Kotak had moved the court to approve its issuance of preference shares as a way to dilute its founder’s stake and had argued that the central bank’s demands are against the public interest. “The reliefs sought in the petition if granted, shall result in making inroads into the RBI’s autonomy and to permit the petitioners and others to become regulators of their own selves,” the RBI had told the Bombay High Court
The banking regulator's policy on founder’s shareholding is “inconsistent, unreasonable arbitrary” and as applied to Kotak Mahindra is “contrary to public interest,” the lender’s lawyers said In its petition last year. The RBI said in its petition that the lender has given various reasons for not meeting the central bank’s order, including its market capitalization, volatility and the global slowdown.
Ending months of tussle over reducing the promoter stake, Kotak Mahindra Bank and the Reserve Bank of India have finally settled the issue amicably. The bank on Thursday said the promoters’ voting rights in the bank will be capped at 20 per cent of paid-up voting equity share capital until March 31, 2020 and at 15 per cent of the capital from April 1, 2020 as approved by the RBI.
“Promoters’ shareholding in the bank will be reduced to 26 per cent of the capital of the bank within six months from the date of final approval of the RBI,” the bank said in a stock exchange filing. Thereafter, the promoters will not purchase any further paid up voting equity shares of the bank till the percentage of promoters’ shareholding reaches 15 per cent of the capital of the bank or such higher percentage as may be permitted by the RBI from time to time, it said.
The bank has also decided to withdraw the writ petition filed by it in the Bombay High Court against the RBI. The promoters — Uday Kotak — currently hold 29.96 per cent stake in the company.

The RBI has rules that prevent a promoter-CEO from running the show for too long. 15 years is the upper limit after extensions. Now while Uday Kotak has been at the helm for much longer than that, the RBI’s rules has finally forced him to step down.
But even then, the bank seems like it just can’t resist taking on the RBI. It found a loophole.
RBI’s rules don’t say anything about whether CEOs can be appointed to the board after retirement. So in April, the bank simply announced Uday Kotak as a non-executive director. It didn’t need the RBI’s approval.
And maybe this explains why RBI is trying to nudge the bank to choose an outsider as its next CEO. While the RBI can’t force Kotak into this, you can see why the central bank might be worried. If Uday Kotak is still on the board and his protégé is running the show, he could still drive the bank from the back seat. And that’s not something the RBI wants.