The board of private sector lender Kotak Mahindra Bank (KMB) on Wednesday approved a proposal to raise capital through issuance of 6.5 crore shares.

According to the current price of its shares, sale of 6.5 crore shares will entail raising up to Rs 7,500 crore.

The capital raising may help the bank's promoter group led by its chief executive Uday Kotak reduce its holding in the bank to comply with a plan mandated by the Reserve Bank of India (RBI). As part of the bank's plan approved by the RBI, the lender is required to get down the promoters' stake to 26 per cent from the over 30 per cent held as of December 2019.

The approval involves sale of 6.50 crore shares of a face value of Rs 5 each either through a private placement of shares, a follow-on public offering (FPO), qualified institutions placement (QIP) or a combination thereof, the bank told stock exchanges.

The markets have been very volatile because of the coronavirus pandemic and there are also questions about the long-term economic impact of the pandemic in India, with many analysts predicting a contraction in the economy.

In a recent report, global ratings agency Standard & Poor's said Kotak Mahindra Bank can weather the challenges which will be posed by the infections and affirmed its rating on the lender.

"The bank will be able to withstand our current expectations of a deterioration in operating conditions over the next 12-24 months. This is due to its above-industry-average risk management, earnings and capitalization buffers, and improving funding profile," the rating agency had said.

The bank had last raised core capital in 2017, when it raised Rs 5,800 crore through the QIP route.

Its shares were trading 1.86 per cent up at Rs 1,151.50 apiece on the BSE at 1315 hrs. PTI AA

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