RBI guidelines may prompt J&K Bank to dilute promoter shareholding

The union territory of Jammu & Kashmir has 64.5 per cent stake in J&K Bank while UT of Ladakh has about 4.5% stake

Jammu & Kashmir Bank, where promoters are the Union Territories of J&K and Ladakh, may have to bring down their shareholding once the Reserve Bank of India (RBI) prescribes a promoter stake dilution plan.

On Monday, the banking regulator released guidelines on acquisition and holding of shares of banks. It said that in specific cases where state government or the Centre are promoters or have been specifically permitted by the RBI to hold a higher shareholding as promoter/non-promoter, the regulator may prescribe a differentiated shareholding dilution plan for such holdings.

While the Union Territory of J&K has a 63.5 per cent stake in the bank, the UT of Ladakh owns about 4.5 per cent. Both are classified as promoters, with 68 per cent shareholding in the private sector bank. The RBI’s latest norms have capped the promoter shareholding in private banks at 26 per cent.

Interestingly, one of the promoters – the UT of Ladakh – has shown interest in infusing around Rs 500 crore in the bank, which will take its shareholding to around 15 per cent.

The latest RBI norms said in case any entity wants to increase stake beyond 5 per cent, they have to seek prior approval from the regulator.

Even after an acquisition, if the shareholding falls below 5 per cent, the person will be required to seek fresh approval from the RBI. The prior RBI approval is also a must if the person intends to again raise the aggregate holding to 5 per cent or more.

The RBI has defined “major shareholding” as “aggregate holding” of 5 per cent or more of the paid-up share capital or voting rights in a banking company by a person.

The bank, however, sees the move to dilute stake has been seen as a positive step as it can diversify its shareholding, sources said. In addition, private investors, like private equity funds, can pick up a stake in the bank, the sources added. There have been many instances where private equity players picked up stake in private banks.

Recently, CA Basque Investments, part of the Carlyle Group, and Verventa Holdings, an affiliate of funds managed by Advent International, have decided to acquire 10 per cent each in YES Bank.

The share of J&K Bank dropped 2.35 per cent on Tuesday to end the day at 56.15 per cent at the BSE.