Kotak-Linked Company’s Legal Settlement and Its Electoral Donations

An Investigation by The Wire Suggests Potential Link

Newsreel Asia Insight #185
April 8, 2024

The Reserve Bank of India (RBI) settled a legal dispute in favour of Kotak Mahindra Bank (KMB) after a Kotak family entity, Infina Capital Private Ltd., made significant donations to the ruling party, according to an investigation by The Wire, which also points out that Infina’s electoral bond purchases exceeded the amounts reported by the State Bank of India (SBI) to the Election Commission of India (ECI).

From FY2019 to FY2022, Infina bought electoral bonds valued at 1.3 billion rupees, the Wire says, adding that these purchases coincided with the RBI’s January 2020 decision to settle a substantial legal dispute out of court in Kotak’s favour. This timing suggests a potential link between the donations and the settlement, as inferred from regulatory filings and the SBI’s disclosures of electoral bonds to the ECI, mandated by the Supreme Court, according to the media outlet.

Uday Kotak, the group’s promoter, faced scrutiny over these transactions, especially given his role in the Securities and Exchange Board of India (SEBI) Committee on Corporate Governance, the Wire points out. Infina, a non-bank finance company (NBFC) partly owned by the Kotak family and KMB, engaged in electoral bond purchases that were not typical of its business operations, necessitating board approval, it further says, adding that Jaimin Bhatt, KMB’s CFO, served on the boards of both KMCC and Infina, raising governance concerns regarding the transparency of these transactions.

The financial impact of these purchases on Infina’s profitability was notable, with the company reporting losses or increased losses in the years of the bond purchases, as per the Wire’s report.

The lack of disclosure in Infina’s directors’ reports about the bond purchases, only evident in the “other expenses” section of its accounts, pointed to a broader issue of transparency and governance in corporate practices, the media outlet says.

Further, SBI reported to the ECI that the company bought electoral bonds for only 600 million rupees from FY2019 to FY2022. Regulatory filings revealed that Infina’s purchase amount was more than double the SBI’s disclosure to the ECI. The exact source of 700 million rupees of these bonds remains unclear, according to the Wire. Infina’s significant transactions occurred during a period marked by regulatory challenges for Uday Kotak. Notably, in FY2020, Infina bought 760 million rupees in bonds, but the SBI only disclosed 350 million rupees.

Infina donated at least 350 million rupees to the Bharatiya Janata Party (BJP) in FY2020, the Wire said. The SBI’s electoral bond disclosures, limited to FY2020 onwards, did not account for Infina’s 300 million rupees purchase in FY2019.

The Supreme Court of India’s criticism of the electoral bond scheme, citing risks of quid pro quo arrangements and policy influence, resonated with the concerns raised by the Kotak-linked NBFC’s actions. The pattern of donations to the ruling party and what appear to be subsequent regulatory concessions to Kotak highlighted the potential for undue influence and regulatory capture.

The silence of the banking journalism and analyst community on this significant issue, juxtaposed with the detailed revelations of the electoral bond purchases and their timing relative to regulatory concessions, painted a picture of a muted response to a potentially explosive story, the Wire noted.