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Kotak-ING Vysya bank deal: First merger since global meltdown

PTI 21 Nov 2014, 11:48:16 AM IST
PTI

New Delhi: Kotak Mahindra Bank's acquisition of ING Vysya Bank is the country's first ever amalgamation of a profit earning entity post the global financial meltdown in 2008.

Although two more mergers took place during this period but those were under different circumstances.

In 2010, Bank of Rajasthan was merged with country's largest private sector lender ICICI Bank. Bank of Rajasthan was a loss making entity and its networth had turned negative.

A subsidiary of SBI, State Bank of Indore was merged with the parent in the same year. This was in continuation of the proposed policy of amalgamation of its subsidiaries over a period of time.

SBI had merged State Bank of Saurashtra in August 2008, just a month before global meltdown was triggered by Lehman Brothers going kaput.

Prior to 2008, the other significant mergers that took place include HDFC Bank acquiring Centurion Bank of Punjab in 2008 and IDBI Bank acquiring United Western Bank in 2006.

Today Kotak Mahindra Bank announced amalgamation with ING Vysya Bank in a over Rs 15,000 crore deal. Post merger, the combined entity will have market capitalization larger than Rs 1 lakh crore.

"This deal may trigger a possibility of fresh wave of deals in the banking industry in India. This is especially true in the context that there are several small to mid size banks in India," SMC Global Securities Head of Research Jagannadham Thunuguntla said.

This deal will bring the combined bank much larger size. Especially when the economy is on the verge of take-off, this will have the combined bank enough bandwidth to take advantage of the future opportunities of the economy, he added. Post merger, the ING Vysya Bank branches would be rebranded as Kotak Mahindra Bank and all subsidiaries will be part of the merged entities.

Asked if there would be rationalisation of employees, Kotak said, "There is no plan."

There is no immediate plan to raise fund as the merged entity have adequate capital, he said.

Shares of the both the banks hit 52-week highs before the merger announcement was made public.

Kotak said the bank will seek RBI permission for raising foreign investment holding to 49 per cent. The foreign holding of the combined entity would go up to around 43 per cent.

There would be branch rationalisation based on efficiency, he said.

"Obviously there would be appropriate action plan for efficient branch management. At this point of time, we won't be going in for branch cutting spree," he said.

The acquisition would help Kotak Mahindra Bank widen its reach in South Indian market. The deal would also help Kotak Mahindra Bank in acquiring SME customers. Kotak has been strong in retail segment as it started its operation as NBFC and graduated into a bank in 2004.

"This revenue synergy led and growth oriented amalgamation, adopting the best practices of the banking, governance and prudence from both banks is expected to result in a superior platform benefiting from efficiencies of size and scope over time for all shareholders, customers and employees," he said.

"I am excited to announce the merger of Kotak Mahindra Bank and ING Vysya Bank, subject to approvals. We will work to create stakeholder value," he added.

The last merger in the banking space took place in 2010 when ICICI Bank amalgamated Bank of Rajasthan. Kotak said revenue synergies, business complementarities, growth potential and cost efficiencies are at the heart of the deal. He also sought to underplay any concern on valuation, saying it is fair at Rs 790 a share, which is a premium of 16 per cent of the 30-day average price of ING Vysya stocks.

There would be branch rationalisation based on efficiency, he said.

"Obviously there would be appropriate action plan for efficient branch management. At this point of time, we won't be going in for branch cutting spree," he said.

The acquisition would help Kotak Mahindra Bank widen its reach in South Indian market. The deal would also help Kotak Mahindra Bank in acquiring SME customers. Kotak has been strong in retail segment as it started its operation as NBFC and graduated into a bank in 2004.

To a question on whether ING will be exiting fully, ING Vysya Bank Director Vaughn Nigen Richtor said they are not looking at bringing down their holding in the merged bank.

When pointed out that there is an RBI cap on non-promoter holding at 4.99 per cent, and therefore will Kotak Bank be paying in cash for the balance holding of 1.51 per cent to ING, Kotak said they will seeking RBI approval for the same.

The foreign holdings, including FIIs and FPIs, in merged entity will be 42 per cent, Kotak said, adding given the limitations on foreign investors to pick up stake in private sector banks, this will be a good opportunities for them to enter the domestic private sector banking space.

Management of both the entities were tight-lipped on when exactly serious talks started on the deal but a senior Kotak Bank official said chartered accountants and bankers were appointed around a month bank for discussions.