Kotak Mahindra Bank shoots up by 2.5 per cent in a weak market

Shares of fourth largest private sector bank by market capitalization, Kotak Mahindra Bank jumped about 2.5 per cent on Monday (6th July). The rise in price was in response to the long awaited approval of Foreign Investment Promotion Board (FIPB), to raise foreign investment limit to 55 per cent from earlier 49 per cent. It was closed at Rs 1429 on Friday (3rd July) but touched intraday high of Rs 1464 on Monday (6th July) on NSE.

Earlier, in November 2014 The Board of Directors of Kotak Mahindra Bank and ING Vysya Bank had approved an all-stock amalgamation of ING Vysya with Kotak, which was subject to the approval of Kotak Mahindra bank shareholders. In January 2015, its shareholders approved amalgamation in an Extraordinary General Meeting held at Mumbai. It includes a share exchange ratio of 725 equity shares of Kotak Mahindra Bank for every 1000 equity shares of ING Vysya Bank. Kotak received approval of Competition Commission of India (CCI) in February 2015 and Reserve Bank of India (RBI) in April 2015.

As per the media reports the merger deal has come into effect from 1st April 2015 and the total value of the deal would be about Rs 15000 crore. After merger, investments from foreign institutional investors (FIIs), foreign portfolio investors (FPIs) and foreign banks had reached 48.55 per cent and Reserve Bank of India (RBI) barred further overseas investments in Kotak Mahindra Bank as foreign shareholding hit the permissible threshold limit of 49 per cent. Kotak Mahindra Bank approached FIPB on April 2015 to raise foreign investment limit to 55 per cent.

The FIPB on Friday (3rd July) approved Kotak Mahindra Bank's proposal to raise its foreign investment cap in the bank from 49 per cent to 55 per cent and clarified rules for overseas investment in insurance. Further, as per the BSE announcement, shareholders of Kotak Mahindra Bank has approved bonus issue in the ratio of 1 equity share for 1 equity share held with a face value of Rs 5, in annual general meeting held on 29th June 2015. The shareholders also fixed 9th July 2015 as record date for the purpose of allotment of bonus shares. As per the media reports Kotak Mahindra Bank is confident of maintaining 15 to 20 per cent growth in corporate loan book in this financial year as well as it has reduced base rate by 0.25 per cent cumulatively during the year to compete with the ICICI Bank, HDFC Bank and SBI who have already declared base rate cut.