MUMBAI: Kotak Mahindra Bank has settled its dispute with the Reserve Bank of India RBI ) over dilution of promoter holding. The settlement between the bank and the regulator envisages the promoters getting six months to dilute their holding to 26%, but losing voting rights beyond 15% with effect from April 2020.In a statement to the stock exchanges, Kotak Mahindra Bank said that the RBI had written to the bank on Wednesday, conveying acceptance of a proposal whereby the bank’s promoter Uday Kotak and family, who hold almost 30%, will cap promoter voting rights at 20% of paid-up voting equity share capital until March 31, 2020. From April 1, 2020 onwards, the promoters’ voting rights in the bank will be capped at 15% of equity share capital.Also, once the agreement with the RBI is approved, the promoters will bring down their shareholding to 26% within six months. Given the bank’s current market capitalisation of Rs 3.11 lakh crore, the promoters will have to sell shares worth Rs 12,500 crore. Alternatively, they can issue fresh shares or dilute equity through an acquisition with the resulting share-swap bringing about the dilution. Kotak Bank had filed a writ petition in the Bombay high court opposing RBI’s directive to dilute the promoter stake when it was required to bring down promoter holding from around 30% to 20% by December 2018 and 15% by 2020. Kotak Bank had responded to this directive by issuing Perpetual Non-Convertible Preference (PNCP) shares in August 2019, which brought down the promoter’s holding to 19.7%. The central bank, however, did not approve this, leading to the bank filing a petition against the RBI.As part of the deal with the central bank, the promoters have agreed not to purchase any further ‘paid-up voting equity shares’ of the bank till the percentage of promoters’ shareholding reaches 15%, or such higher percentage as may be permitted by the RBI from time to time.If the laws in future allow it, the promoters will be entitled to purchase paid-up voting equity shares of the bank up to 15% of the equity shares capital or a higher percentage.The bank’s board of directors have resolved to abide by the conditions set by the RBI. In June 2019, the RBI had penalised Kotak Mahindra Bank Rs 2 crore for its failure to adhere to the regulator’ diktat on promoter shareholding.In September 2018, the RBI had frozen the salary of Bandhan Bank CEO C S Ghosh and barred the lender from opening new branches for not adhering to the central bank’s guidelines on diluting promoter stake. According to banking sources, the petition filed by Kotak Bank might have prevented the RBI from imposing similar restrictions on it.Industry sources pointed out that this was the best deal that Kotak Bank could have expected. Had the court judgment gone in favour of the lender, earlier court orders had reaffirmed RBI’s powers to come out with new guidelines.