Mumbai: Shares of Bandhan Bank Ltd hit a lower circuit of 20%, their biggest single day decline since listing, on Monday after the Reserve Bank of India barred the lender from opening new branches without its approval and ordered freezing its chief executive Chandra Shekhar Ghosh’s salary due to the bank’s failure to meet shareholding rules. The Bandhan Bank stock price touched a record low of Rs 451.20 on BSE, down 20% from previous close. The benchmark Sensex Index was down 0.25% at 36,137.36 as of 10.02am. The sharp selloff in Bandhan Bank eroded $2 billion of the bank’s market value.
According to the guidelines, the bank’s promoter, Bandhan Financial Holdings Ltd, has to reduce its stake from 82% to 40% within three years of commencing the business. The deadline for Bandhan Bank was on 23 August. Thereafter, banks are required to reduce their shareholding to 20% and 15% within 10 years and 12 years, respectively. The bank has assured that it was taking necessary steps to comply with the licence condition on shareholding.
The bank in a conference call with analysts on Saturday said that it is exploring inorganic opportunities to reduce promoters’ stake. The bank also said that it is evaluating starting non banking businesses at the non-operating financial holding company level.
Kotak Mahindra Bank fell over 12%, its biggest fall in nine years, to Rs 1,002.30 after analysts fear the similar action after the bank failed to reduce its promoter holding last month. Kotak Mahindra Bank has to pare its promoter stake to less than 20% in the next three months. Uday Kotak, vice chairman and managing director of the Kotak Bank, currently holds a 30.03% stake in the bank. The selloff in Kotak Mahindra Bank wiped $2.47 billion off the market cap of the lender.
In August, the RBI had rejected Kotak Bank’s proposal to issue non convertible preference shares to reduce promoter holding. Earlier Kotak Bank said that it is looking to raise as much as ₹500 crore by issuing non-convertible perpetual non-cumulative preference shares to dilute promoter shareholding. RBI had mandated the bank to reduce promoter shareholding to 20% of paid up capital by 31 December 2018, and 15% by 31 March 2020.