Kotak Mahindra Bank Ltd.’s potential takeover of IndusInd Bank Ltd. would create India’s eighth-largest lender by assets at a time when the nation is battling one of the world’s worst bad debt problems.
In what could be the country’s biggest-ever banking deal, Kotak Mahindra -- backed by Asia’s richest banker Uday Kotak -- is exploring a takeover of its smaller rival, people with knowledge of the matter said this week. A combination would boost its assets to 7 trillion rupees ($950 billion) and cement Kotak’s position as India’s fourth-largest private bank, closing the gap with Axis Bank Ltd.
“Kotak has always found it difficult to build scale organically,” according to a report by Macquarie Capital Securities analysts, led by Suresh Ganapathy. “Acquiring IndusInd Bank would result in Kotak’s asset book, loan book and branch network increasing by 85 per cent, 94 per cent and more than 100 per cent, thereby giving it tremendous scale/size benefits.”
A spokesman for Kotak declined to comment on the takeover plans, while a representative for IndusInd denied the report.
India’s almost $2 trillion financial sector -- home to more than 20 private sector banks and over 10 state-run lenders -- is struggling to contain the fallout from the coronavirus pandemic that’s expected to shrink the economy by the most in four decades. Banks came into the year already weakened by a two-year-old shadow lending crisis that had eroded capital.
The South-Asian nation’s bad loan ratio -- already the worst among major countries -- is set to worsen further and may soar to 12.5 per cent by March, hampering any hopes for an early recovery. With Kotak and IndusInd facing similar soured debt ratios on their loan books, a deal is unlikely to impact the lenders’ bad debt too much.
Kotak’s “excess capital, its healthy balance sheet and its conservative management could allow it to benefit from IndusInd’s well-diversified loan book and low valuation of 1.1x forward price to book, if a potential takeover of IndusInd goes ahead,” said Bloomberg Intelligence banking analyst Diksha Gera.
Banks face stiff competition for customer deposits, with more than 30 lenders serving about 574 million Indians who have access to basic savings accounts. The potential merger would boost Kotak’s deposits by 81 per cent to 4.7 trillion rupees, still way behind the likes of HDFC Bank Ltd.
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12 Comments on this Story
Tara30 days ago
Rules for Focused Success in a Distracted World
Pradeep Kumar Mittal31 days ago
The merger between two depends on various parameters like one has peoples and other has a profit. Loaning experience is another parameter that can make one share the dice. How to serve the government is, respect to democracy but how is it helpful to poor for a payout of the loan back. South Asia is also a check to build an economy during this pandemic. Kotak Mahindra Bank is showing its maximum to serve people financially in a possible merger with the other bank.
Deepesh Sao31 days ago
Kotak lend based on their choice and liking. They absolutely make sure that their money comes back if not with profits. They don't care on inflating their topline, their CASA is at 56% and HDFC Bank's is 43%.In Banking, Bank on the Man who banks on Risk Management and this Macquarie Analyst says "kotak has struggled to grow Organically". It's funny really.