The board of directors of Kotak Mahindra Bank will consider the issuance of bonus shares at the next board meeting on June 7. This step is aimed at meeting the Reserve Bank of India’s (RBI) stipulations on minimum equity capital.

The RBI asked existing private banks to ensure that equity capital is on par with the entry capital requirement for new private sector banks.

This was stated in the central bank’s policy framework for ownership and governance in private sector banks. The entry level capital requirement for private sector banks now stands at Rs 200 crore with a commitment to further increase this to Rs 300 crore within three years.

Senior Kotak Mahindra Bank officials said the fresh proposal for a bonus issue is a result of RBI’s stipulations on minimum capital requirements.

The bank’s equity capital as on March 28, 2005 was Rs 123.32 crore. The bank’s share closed 7.81 per cent higher at Rs 373.45 on Tuesday.

RBI wants existing private sector banks to meet the minimum capital requirements, but has not set any deadline for the purpose. In the interim, it has asked all banks in the private sector to have a minimum net worth of Rs 300 crore at all times.

Private sector banks not meeting the minimum capital stipulations are required to provide a roadmap to the RBI as to how they propose to raise their capital base.

Kotak Mahindra Bank in a notice to the stock exchanges, said the issuance of bonus shares will be carried out through capitalisation of reserves.

The bank’s reserves, excluding revaluation reserves, as on March 31, 2004 stood at Rs 546.12 crore.

This will be the second bonus issue within a span of 10 months. Kotak Mahindra Bank issued bonus shares in the ratio of 1:1 in August 2004, thereby raising its equity capital to Rs 119.06 crore.

Further to that, Kotak Mahindra Bank issued 16.50 lakh shares each to Madison Holding and Melany Holdings on a preferential basis at a price of Rs 230 per share in February 2005.

The private sector bank has also issued shares under employee stock option plans subsequent to the bonus issue in August 2004.