Kotak's Rs 60 Cr BJP Donation Coincided with RBI's Kotak Mahindra Bank Decisions

Uday Kotak, a prominent banker, finds his firm listed among electoral bond donors. For nearly a decade, the 65-year-old banker had been entangled in a dispute with the Reserve Bank of India regarding his stake in Kotak Mahindra Bank, the country's third-largest private sector bank, purportedly exceeding the limit set by the central bank.

In December 2018, Kotak Mahindra Bank took the Reserve Bank to court over this issue. Thirteen months later, in January 2020, an out-of-court settlement was reached, wherein the central bank accepted the private bank’s proposal.

Newly released electoral bond data by the Election Commission reveals that a Kotak group entity donated Rs 35 crore to the Bharatiya Janata Party (BJP) in the period leading up to the settlement. Notably, Rs 10 crore was contributed shortly before the announcement of the settlement.

Infina Finance, a Mumbai-based non-banking financial firm, is the Kotak group entity in question, jointly owned by Kotak Mahindra Bank through its subsidiary and the Kotak family. Care Ratings reports that the Kotak family owns a 50.01 per cent equity stake in Infina Finance, while the remaining 49.99 per cent is held by Kotak Mahindra Capital, where Uday Kotak serves as a director.

Infina Finance exclusively donated Rs 60 crore worth of electoral bonds to the BJP, without contributing to any other political party.

The prolonged dispute between Kotak and the RBI dates back to February 2013 when the central bank issued guidelines capping the stake of a promoter in a private bank at 15 per cent within 12 years of its inception.

Kotak Mahindra Bank was instructed to reduce its promoter shareholding in phases. Despite partial compliance, the bank proposed further dilution using non-cumulative preference shares, a move rejected by the RBI. Subsequently, Kotak Mahindra Bank filed a lawsuit against the central bank, leading to an out-of-court settlement in January 2020.

In the months preceding this settlement, Infina Finance purchased electoral bonds worth Rs 35 crore. This included Rs 25 crore in October 2019 and an additional Rs 10 crore in January 2020, shortly before the RBI accepted Kotak Mahindra Bank’s proposal.

While some critics suggest a connection between the donations and RBI's actions, others view the regulatory measures as routine for industrial conglomerates but unusual for financial professionals or entrepreneurs in banking. Uday Kotak resigned as managing director and CEO of Kotak Mahindra Bank on 1 September 2023, ahead of the expiry of his extended term.