The Finance Ministry has now paved the way for Uday Kotak, Managing Director & CEO of Kotak Mahindra Bank to remain chairman of the Board of Infrastructure Leasing and Financial Services Ltd (IL&FS) for six more months.
The Department of financial services (DFS) in the Finance Ministry has now extended by six months (from October 3, 2021 to April 2 next year) the existing exemption accorded to Kotak Mahindra Bank regarding its MD& CEO Kotak serving as a non-executive director in IL&FS. This finance ministry move comes on the recommendation of the Reserve Bank of India.
This is the fifth time such an extension is being given to Kotak Mahindra Bank under the Banking Regulation Act 1949.
It may be recalled that the RBI had, on December 14, 2020, approved a three-year tenure extension to Kotak as CEO of Kotak Mahindra Bank till December 31, 2023.
Exemptions to norm
The Banking Regulation Act 1949 prohibits a bank from being managed by a person who is a director of any other company (other than a subsidiary of a banking company or a non-profit company registered under Companies Act 1956). It, however, allows the central government to provide exemptions to this norm for a specified period based on the recommendation of the RBI.
The government had in 2018 appointed Kotak to the Board of IL&FS to help the crisis-ridden IL&FS, which had seen a blowout, come out of its mess.
The finance ministry had first granted a three-month extension under the Banking Regulation Act, followed by nine months extension and two more extensions of one year each. Kotak’s term as Chairman of the Board of IL&FS was due to end on October 2 this year.
Complex web
The Kotak-led Board at IL&FS had discovered a complex web of over 250 companies forming part of the IL&FS group, which had an outstanding of over ₹ 94,000 crore to lenders.
On Tuesday, in the context of the Evergrande development– which roiled the global capital markets– Kotak had tweeted that the Indian government had acted swiftly on the IL&FS matter and that the Government-appointed board estimates 61 per cent recovery at IL& FS.
Kotak’s tweet on the Evergrande development said, “Evergrande seems like China’s Lehman moment. Reminds us of IL&FS. Indian government acted swiftly. Provided calm to financial markets. The Government appointed Board estimates 61 per cent recovery at IL&FS. Evergrande bonds in China trading ~25 cents to a dollar”.
Meanwhile, commenting on Kotak’s extension as Non-Executive Chairman of IL&FS, C S Rajan, Managing Director, IL&FS, said, “IL&FS is privileged to enjoy the continued leadership of Kotak for another six months. I am confident that under his guidance the IL& FS would accomplish the resolution targets set”.