On Monday, stock price of Kolkata-headquartered Bandhan Bank fell 20 percent, leaving investors in a difficult spot. This happened after the Reserve Bank of India took action and restricted the bank from opening new branches and also freezing the salary of its Founder and CEO, Chandra Shekhar Ghosh.
Why RBI took action against the bank?
Bandhan Bank which started as a micro-finance company in 2001, received banking licence by Reserve Bank of India in 2014. As per the conditions governing the license granted to Bandhan Bank by the RBI, threshold for the promoters' stake should have been brought under 40 percent within the first three years of the commencement of its operations. But according to the shareholding structure of the bank as on 30th June 2018, the promoter and promoter group hold 82.28 percent stake.
“RBI has communicated to us that since the bank was not able to bring down the shareholding of Non Operative Financial Holding Company to 40% as required under the licensing condition, general permission to open new branches stands withdrawn; however, the bank can open branches with prior approval of RBI. The remuneration of the MD and CEO of the bank stands frozen at the existing level, till further notice,” the bank said in a notification to BSE. "The bank is taking necessary steps to comply with the licensing condition to bring down the shareholding of NOFHC in the bank to 40 percent and shall continue to engage with RBI in this behalf, Bandhan Bank added."
The situation gets further complicated for Bandhan Bank
The situation gets much more complicated as the bank has found it unable to dilute its promoters' stake. According to another mandate set by RBI, promoters have a mandatory one-year lock-in period after the IPO and during this period, they are not allowed to sell their shares so as to protect investor interests. Bandhan Bank's initial public offering concluded at the end of March of this year, leaving six more months for promoters to start selling their shares and comply with RBI's stake threshold.