There was an overhang on the Kotak Mahindra Bank stock. The same has now been lifted. This follows the resolution of the standoff between its promoter and the sector regulator. It is important to look at how the standoff ended.
Reserve Bank of India’s licensing rules lays down that private sector banks require to reduce their promoter stake to 40%. This is to happen within 3 years of commencing operations. Later, the stake needs to be pruned to 20% within 10 years and 15% within 15 years. The standoff between promoter Uday Kodak and the RBI was started first in August 2018. It was in the backdrop of the bank’s proposal to bring down the promoter stake through PNCPS (Perpetual Non-Cumulative Preference Shares). The issue was aimed to cut the stake to more than 19%.
The regulator, RBI refused to permit the proposal, subsequently, the bank filed a lawsuit against RBI. In February the disagreeing parties reached an agreement that promoter shareholding can be brought down to 26% by 2020 to meet this goal Kodak has sold 56 million shares through block deals to bring down his stake. Kotak Mahindra Bank emerged as one of the most expensive stocks among private-sector lenders. Its operations looked up despite 17% down in February, the stock trades at 3.4 times its estimated value for FY2021. It is to be noted that the ICICI Bank and Axis Bank have traded lower than their estimated value for the period.
Anyhow, these differences did not discourage investors. The stock has excelled at the NIFTY since the standoff with the regulator began. Moreover, Kodak accomplished to sell his stake at the upper end of the price band. That is, selling the stake to several investors from foreign pension funds to domestic mutual funds. There is the added relief of compliance which is reflected in the near about 2% gains in shares, analysts are upbeat about the bank’s business performance set the tone for the share price. From this point on everything depends on the asset quality for lenders, Kodak Mahindra Bank is still an expensive stock according to analysts. On the asset quality side, the lender is well off. Even so, investors would like to see how the first and second quarters stack up for the bank in terms of asset quality.
