Interscience Management Review

Volume 4 Issue 2 Article 5

July 2014

Merger and Acquisition Deal Brings Leveraging Synergy – An

Analysis of Kotak Mahindra Bank & ING VYSYA Bank
Rashmi Ranjan Panigrahi
SOA Deemed to be University, Bhubaneswar, [email protected]

S. K. Biswal
SOA Deemed to be University, Bhubaneswar, [email protected]

Ansuman Sahoo
Utkal University, Vani Vihar, Bhubaneswar, [email protected]

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Recommended Citation
Panigrahi, Rashmi Ranjan; Biswal, S. K.; and Sahoo, Ansuman (2014) "Merger and Acquisition Deal Brings
Leveraging Synergy – An Analysis of Kotak Mahindra Bank & ING VYSYA Bank," Interscience Management
Review: Vol. 4 : Iss. 2 , Article 5.
DOI: 10.47893/IMR.2011.1087
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 Merger and Acquisition Deal Brings Leveraging Synergy –
An Analysis of Kotak Mahindra Bank & ING VYSYA Bank

Rashmi Ranjan Panigrahi1, Dr. S. K. Biswal2 & Dr. Ansuman Sahoo3

1
Faculty of Management Studies, Institute Business Computer Studies, SOA Deemed to be University,
Bhubaneswar
2
Department of Finance & Control, Institute Business Computer Studies,
SOA Deemed to be University, Bhubaneswar
3
Department of Business Administration, Utkal University, Vani Vihar, Bhubaneswar

Abstract - The quest for growth and changing market share. This paper is based on post- facto
demand of banking environment provides special analysis, importance and challenges faced in the process
importance towards Mergers and acquisitions in the of merger &acquisition. Horizontal merger in industry
banking world. Merger play significant role towards brings development in in-take capacity, correction of
corporate restructuring. In recent times many sales figure and increase in efficiency after joining of
company were using Merger &Acquisition as tool the firms.(westons,pp123). Past record shows that
towards cost reduction and revenue generation. This merger and acquisition provide benefits to the society by
paper is based on conceptual clarity on significance increasing value of shareholders of both target firm &
of M&A, value synergy and challenges faced by acquiring firm without disturbing much concentration. It
kotak Mahindra bank towards process of merger. It also helps to bring improvement in effectiveness and
was observed that big companies like HDFC with efficiency of merged entity (H.R. Machiraju, pp, 170).
Centurion bank of Punjab & ICICI Bank with Bank In the month of November 2014 was a historic time for
of Rajasthan are entering into the process of merger kotak Mahindra bank because on the same time period it
for capturing the value of synergy in long term. was announced its acquisition over ING Vysya Bank.
Merger and acquisition becomes the major financial The M&A deal was of Rs. 2 trillion and market
instrument used towards correction of financial capitalization is around 1 trillion. This deals was provide
image of corporate entity. One of the main objectives millage towards sufficient capital, large infra, and
of Merger &Acquisition in banking industry is to growth in our Indian.
reap the advantages of economies of scales. The
The news in itself had already created a wave in
process of acquisition of ING Vysya bank was
the stock market as shares of Kotak Mahindra Bank and
started by kotak Mahindra bank on November 2014.
ING Vysya rose to all-time highs. The stock of Kotak
For analyzing qualitative content of this topic we
Mahindra surged by 7.28% to settle at 1,157.1 on the
have used Case study approach, this case study
Bombay Stock Exchange and stock position of ING
reveal the strategic motives of kotak Mahindra
Vysya Bank shares rallied 7.15% to end at 814.20 on
bank.
Thursday against the previous day amid merger reports.
Keywords - Merger and Acquisition, leverage. Synergy. In intra-day session, shares of Kotak jumped 7.89 % to
touch its one-year high of 1,163.7 and as comparison
INTRODUCTION to shares kotak , ING Vysya Bank zoomed 13.81 % to
864.80; its 52-week high. Investment expert Ashwani
According to the expert opinion of banking
Gujral suggested to the investors should go for “BUY”
Industry merger and acquisition used as a major tool by
for Kotak Mahindra Bank with a target of 1175 and a
banking company to handle the steep market
stop loss of 1130 to 1140. This acquisition is the 1st
competition. In the present globalised economy steps of restructuring in the country like India which
corporate restructuring can be possible because of fetch profit after financial crises in the year 2008. In this
merger & acquisition. In India M&A strategies are
periods two of prominent merger Bank of Rajasthan
adopted by most of banks adopted towards increase in

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 Merger and Acquisition Deal Brings Leveraging Synergy – An Analysis of Kotak Mahindra Bank & ING VYSYA Bank

with ICICI bank and another merger SBI merged with network platform like facebook, twitter etc. It has a
all subsidiaries bank not successful as like kotak separate payment gateway as “KayPay” which also
Mahindra bank and ING Vysya bank. Prior to 2008, the connect with client through Facebook. This gateway
other significant mergers that took place include HDFC provide speed, accuracy in money transfer transaction
Bank acquiring Centurion Bank of Punjab in 2008 and with in over a day or night.
IDBI Bank acquiring United Western Bank in 2006.
Mutual fund investment also maintained by KMB
Especially when the economy is on the verge of take-
in consolidates form. It has also products and services
off, this will give the combined bank enough bandwidth
like Home loan, vehicle loan, commercial loan etc as per
to take advantage of the future opportunities of the
the need and requirement of customer. It also provide
economy, he added. The mega deal looks to gain a
specialized banking service for corporate or business
bigger footprint before new private banks enter the
houses like: Trade services , Current account services,
Indian banking space.
credit facilities and cash management services
The Journey of Kotak & Kotak Mahindra Group
The Journey of ING Vysya & ING Vysya Bank
Kotak founded Kotak Mahindra as a bill
Vysya bank was established in the year 1930s in
discounting NBFC in 1985. It became a big player in
the city of Bangalore, Karnataka. It was known as
auto finance in the ‘90s and formed JVs with Ford. The
“credit of Indian banking” ING Vysya Bank is a premier
group received a banking license in 2002. ING inherited
private owned Indian multinational financial institution
its stake of 10% in Vysya Bank after it purchased
from 2002 onwards with an equity stake of Dutch ING
Belgium’s Bank Brussels Lambert in the year 1998. It
Group. It was started as a private banking platform for
resulted in increase its stake to 20% in Nov 1999, and
catering needs and requirement of business houses. It
then to 49.33% by acquiring GMR Group’s holding in
was served almost 2 million customers & 80 years of its
June 2002. It gets an exit route from managing a retail
association with India. It act as global financial services
bank in India, which ties up with the Dutch group’s
provider with innovative and developed products and
global strategy.Kotak Mahindra Group was established
services across 573 branches. As per the statistics as on
in 1985, as a one of India’s leading financial services
March 2013 it has total assets is of Rs. 54,836 crore. It
institution in conglomerates. In year 2003, Kotak
had around of 1000 employees. the company is listed in
Mahindra Finance Ltd. (KMFL), the Group’s flagship
BSE & NSE. As per the survey of Nielsen 2011, ING
company, received a banking licence from the Reserve
Vysya was ranked as 5 most trusted brand among
Bank of India (RBI). KMFL became the first non-
Private sector banks .
banking finance company (NBFC). In India to become a
bank from NBFC Kotak Mahindra Bank Limited. Exhibit – 1
The consolidated balance sheet of KMB is over Pecking Order to Change
Rs. 1.34 lakh crore and the consolidated net worth of the Largest listed private banks by total business (after
Group stands at Rs. 20,554 crore (approx US$ 3.3 merger)
billion) as on September 30, 2014. The Group offers a Serial Amount of
wide range of financial services that encompass every ranking Name of the bank business
sphere of life. From commercial banking, to stock order undertaken
broking, mutual funds, life insurance and investment 1 HDFC Bank 7,17,955
banking, the Group caters to the diverse financial needs
2 ICICI Bank 7,13,813
of individuals and the corporate sector. The Group has a
wide distribution network in London, New York, Dubai, 3 Axis Bank 5,25,926
Abu Dhabi, Mauritius and Singapore through different Kotak+ ING
4 2,13,261
branches and franchisees across India, and international Vysya bank
platform. 5 Yes Bank 1,42,161
Kotak Mahindra Bank: 6 Indusind Bank 1,25,977
Kotak Mahindra Bank is a financial institution 7 Federal Bank 1,13,030
which provides retail financial solution for different 8 J&K bank 1,08,045
types clients. Apart from traditional banking services it South Indian
also have different innovative products like online 9 82,065
Bank
shopping, ASBA, Bills payments, Active Money etc. 10 Karur Vysya bank 79,980
First fully integrated Social bank account was setup by
KMB for its customer’s as “ Kotak’s Jifi”. This account *As of September 2014- Source: Capitaline/ Banks
has been linked with digital banking through different Compiled by Business Standard Research Bureau

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 Merger and Acquisition Deal Brings Leveraging Synergy – An Analysis of Kotak Mahindra Bank & ING VYSYA Bank

Exhibit – 2 Stocks Gain was exchanged with 725 shares of Kotak Mahindra
Bank.
Kotak Mahindra Bank
Exhibit – 4
Previous Close: Thursday Close:
1,078.5 1,157.1 Business Cooperation – ING Group and Kotak
Rise: 7.28%
ING Vysya Bank
Previous Close: Thursday Close:
759.9 814.2
Rise: 7.15%

Source: BSE
Exhibit – 3
The Transaction
The holding of 42.73% of ING Vysya by Dutch
financial giant company ends with the holding of 25.3%
in the process of merger.
As the merger in the form of full share swap deal.
Promoter’s proportional stake wa reduced from 40.07%
to 33% of Kotak bank. After there is a pressure of RBI
to reduce the stake of promoter’s from 33% to 30% by
December 2016 and reduced to another 20% by the end
of 2018. It will give rise to issuance of new 15% equity
share of merged entity. All this steps should accordance
with RBI guideline.
Uday Kotak had described this merger gives a
favorable occasion by joining two banking institutions
with their predominant complementary strength.. He
believes this merger will recognized as good financial
Robin Roy (Ass.Director for financial services, services institution having strong understanding of
PwC India), opined that unlike the regulator-driven Indian as well as global financial standard.
mergers and acquisitions in the past, this is a market-
driven one. For ING, the pressure from the government Exhibit – 5
back home at the Netherlands and its change in global Banking on Union: How they stack up
strategy marked its exit from the joint venture. But for
Kotak, that has been looking for growth with the * Kotak ING Kotak +
Figures in Crore
backdrop of growing GDP and forthcoming Bank Vysya ING Vysya
opportunities, getting a non-complementary branch Net Profit (FY 14)* 2,465 658 --
network and a supplementing product portfolio makes Deposits* 68,103 44,652 1,12,755
sense. He also said that there should be enough space for Advances* 60,948 39,558 1,00,506
everyone to think for long-term relationship in banking, Market
and there are so many evidences that , in the process of Capitalization (Nov 89,253 15,483 1,04,735
merger and acquisition , it create value for shareholder 20, 2014)
in long run. Number of
29,220 10,591 39,811
Employees
Terms of the Merger Branches 641 573 1,214
The merger referred as a strategic merger by many ATMs 1159 635 1,794
experts opine that the transaction will significantly add Employees (nos) 29,220 10,591 39,811
muscle to KMB and reduce shareholding as per rules of Customers (million) ~2 ~8 ~ 10
Reserve Bank of India.. The all-share deal is over
Source: Business Standard, 21.11.14 & Times of India,
15,000 crore deal, where the swap ratio is fixed at
22.11.14
725:1.000. This means every 1000 share of ING Vysya

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Merger and Acquisition Deal Brings Leveraging Synergy – An Analysis of Kotak Mahindra Bank & ING VYSYA Bank

.
Exhibit – 6
Summary Financials – Kotak (Merged Proforma)

The sum total of current account and saving account will be 31% after the merger.

Exhibit – 7

Summary Ratios – Kotak (Merged Proforma)

* Based on Standalone financials; Half year statement’s figure are converted to annual as required.

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 Merger and Acquisition Deal Brings Leveraging Synergy – An Analysis of Kotak Mahindra Bank & ING VYSYA Bank

Exhibit – 8
Key P&L Items – Kotak (Merged Proforma)

Note: it is based on normal calculation of simple addition of merging financial statement

.
Employee Perspective
In the process of Post merger, all the employees &
branches of ING Vysya bank become the part of Kotak
employees practices. Combined entity of both the
Mahindra bank branches and employees. Uday Sareen
organization will work towards achieving it objective to
(ING Vysya’s CEO) will be positioned as top
become world class organization.
management of Kotak, directly answerable to
KMB.Besides, ING Vysya will have one board member Benefits of Kotak Bank
in the merged entity and this will be decided by its
Analysts at top brokerage firms like Nomura are of
board. Regarding any cultural challenges, as ING Vysya
the view that the amalgamation between KMB and ING
Bank is an old South-based bank, Uday Kotak is in the
Vysya will bring situation of happy combination and
view that culture is about the mindset of people and they
are very happy to have a strong combined mindset of gap filler in many respect. According to experts, the deal
people. However, some of the people, especially in the would bring value-accretive situation for KMB. It also
heps to expending the branch network . The acquisition
middle and senior-level management, are very useful to
would give Kotak access to ING Vysya's 573 branches
every organization and Kotak will definitely reach out to
(90% of Kotak's current branch network) and will
them. He said Kotak will respect the current
increase Kotak's number of branches from 641 branches
organizational structures at ING Vysya Bank and will
work within a framework that is beneficial to both the now to 1,214 branches. An significant point comes to
entities and all stakeholders. KMB bring values the the notice i.e Kotak doesn't have branches presence in
65% of ING Vysya's current branch locations except
diversity for ING Vysya employees towards a smooth
few metro locations, which accounts for only one-third
functioning of merged entity. Currently, there are
of total branches of the merged entity, branch overlap
10,591employees in ING Vysya Bank and 29,220
will be very low with ING Vysya having 66% of its
employees in Kotak Mahindra Bank.
branches in South India especially Andhra Pradesh,
From the above analysis it was reflected that both Telengana & Karnataka where Kotak has limited foot
the organization very good culture organizations, good print and 68% of bank branches of Kotak Bank was on
the part of the West and North India. Benefits of this
merger to KMB will be 2 million customers.

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 Merger and Acquisition Deal Brings Leveraging Synergy – An Analysis of Kotak Mahindra Bank & ING VYSYA Bank

Exhibit – 9 Exhibit – 10
Complementary Network – Breadth and Depth Banks in Different Regions
Together

Kotak Bank has already has a good base in cities

like Delhi and Mumbai, and in general it covers West
and North of India. They need to focus on acquisition in
South zone, i.e. Bangalore, Hyderabad and Chennai.
This merger gives them access to the south. However,
the concentration in Chennai is low, in comparison, and
Kolkata isn’t much either. A report from Espirito Santo
First diagram is of extension counters; 2 diagram is Securities had said that merger provides strategic fit to
of Mumbai and Thane kotak Mahindra Bank on the basis of accessibility of
new products/ new talent, customer base, expansion
opportunity. Post merger situation brings correction on
liability because more than 65% ING Vysya”s are fall
under urban and metro
.
Exhibit – 11
Complementarily to Drive Higher Customer Wallet Share

.
It will also bring a complementary customer base KMB would strongly focus on building an
to the table, as ING Vysya has a strong customer base of international relationship with ING Bank. He also added
high-networth individuals and salaried customers on the that Kotak Bank look forward to know high-quality
liabilities front. On the advances front, ING Vysya is a practices of ING Vysya bank in the Smal medium
national player in SME segment, which is a core area of enterprises business, digital banking platform and
Kotak. international dealings.

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.
Exhibit – 12
Kotak ING Vysya Bank Amalgamation: Sensitivity Analysis
Assuming No. of % of Promoter Change
Purchase Kotak EPS Kotak EPS
Kotak Purchases Shares Current Stake In MSe
Amount (Pre-Deal, (Post-Deal,
100% at a issued by Share (Post Share F15 EPS
( Bn) F15, MSe) F15, MSe)
premium of: Kotak (Mn) Count Swap) (%)
0% 144 134 17.4% 34.1% 45.7 48.0 4.9%
10% 159 147 19.1% 33.6% 45.7 47.3 3.3%
14%
(Media quoted 165 153 19.8% 33.4% 45.7 47.0 2.7%
Valuation)
25% 180 167 21.7% 32.9% 45.7 46.2 1.1%
50% 217 201 26.0% 31.8% 45.7 44.7 -2.3%
Source: Company Data, Morgan Stanley Research estimates
.
Analysts at top brokerage firms remain positive on loan segment was 38%. It will pressurize KMB for
the merger announcement and see it as a big positive for diverfication of loan segment. The CASA ratios for
Kotak Mahindra Bank as the merger will also give KMB and ING Vysya was approx. nearer to each other
access to ING's SME platform. Kotak’s strength lies in i.e. 32-33%, but SME has strong dependence on CASA.
retail business, as in terms of portfolio complementary, It gives better opportunity towards providing long term
half of Kotak’s loans are retail ones, while ING Vysya's liability to KMB..
key contribution in small medium enterprises sectors
.
Exhibit – 13
Shareholders – Significant Value Drivers in Place

“CAR is based on standalone financials as of September 30, 2014 and includes H1FY15 profit; 2 considering the swap
ratio of 0.725 shares of Kotak for every share of ING Vysya”
.
ING Vysya bank has the Foreign holding around Benefits in terms of products covers i.e. investment
74%, the merger will fetch more liquidity and foreign banking, Assets Management, private banking, asset
money. This process brings 74% of foreign shareholding management, insurance, investment banking etc. kotak
post- merger situation. Customers and employees will bank ‘s capital position helps to avoid capital raise . it
get more benefits in relation to expertise across dilutes with ING vysya shareholder.
customer segments, geographical space i.e Corporates,
Kotak’s strong capital position potentially avoids
HNI, SME.
capital raising and attendant dilution in the near to
medium term for ING Vysya shareholders.

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 Merger and Acquisition Deal Brings Leveraging Synergy – An Analysis of Kotak Mahindra Bank & ING VYSYA Bank

Management Perspective Exhibit – 14- Swap Play

Buy Sell Amount ( )
After KMB acquire the ING Vysya bank, it was
Kotak
observed that by the management, this process brings -- 1000 12 lakh
Mahindra Bank
new challenges and opportunity. According to Uday ING Vysya
Sareen (CEO, ING Vysya ) the company after 1476 -- 12 lakh
Bank
acquisition focuses on cost reduction on long run. The On merger, you get 1,070 shares of Kotak
impact of acquisition may not have direct impact on Mahindra Bank
price reduction. Kotak
Gain -- 70 shares
Mahindra Bank
As per optimistic view point of kotak bank’s the
Profit -- 7%
higher will be the cost to income ratio helps in market
growth. Combined entity will provide increase trend of Source: Economic Times of India, 25.11.14
5 crore ( from 140 crore to 145 crore) at a saving Analysts said a spread of 6-8% can be expected in
rate of 6%.. the five to six months it will take for the transaction to
On impact on employees post merger, Uday Kotak be completed and the risks associated with the deal
going through. The spread of 6-8% reflects the funding
clarified that the objective of the merger is growth and is
cost during this period, said Vaibhav Sanghavi, MD,
not about blatant cost-cutting and there are clearly no Ambit Investment Advisors.
plans for employee rationalization. There are 3000
unionized employees of ING Vysya who are getting Benefits of ING Vysya Bank
remuneration on the basis of Sector-wise settlements. Many employees feel excited to being part of 4th
largest private banking institution of our country.
Regarding branch strength of merged entity, Kotak
Prateek Tiwari, one of the Branch Managers of ING
see virtually no area on the network which is excessive. Vysya bank feels that many opportunities come for
Uday Kotak feels the merger with ING Vysya is a them. As per the thought process of Tiwari, new
perfect match and believes that over the next five and challenges come for ING Vysya Bank. KMB gets
ten years, the marginal utility of the branch will come benefits of Internatinal client base of ING Vysya Bank.
down. Kotak is also preparing for that world as well. There is a plan to achieve minimum 15% ROI latest by
But there are no plans to go on a branch cutting spree. 2014and it must in realistic in nature.
On raising capital, Uday Kotak said that there is no Job security should be prime concerned area of loans
immediate plan to raise new capital as the capital of the branches of women employees of KMB. This merger is
combined entity is very strong. an interesting stuff for the banking industry in India.
Post Merger Scenario – its Valuations approach
Investors’ Perspective
Nomura has a 'neutral' rating on Kotak, which is
more valuation-driven (currently 3.25x Sept-16 book).
The wealth managers have spotted an arbitrage An acquisition of ING Vysya strategically would make
opportunity for Kotak Bank shareholders post merger. sense, and if it happens at valuations which are 10 %
On 24th November, i.e. Monday, the Kotak Bank share EPS/book accretive.
opened at 1,210, touched a high of 1,218, before
Kotak Bank has the highest leverage to an
closing at 1,199.60. The share price of ING Vysya
improving macro environment which is driven by a) its
bank opened with the amount of 819.80, before strong balance sheet - Tier 1 at 16.6% and negligible
touching a high of 823.5 and ended the day at asset quality issues; b) cyclical uplift to capital market
813.45.Jignesh Shah, Founder, Capital Advisors, revenues and high potential for recoveries from
explains if one sells 1,000 shares of Kotak Mahindra investments in stressed assets, which could help to more
Bank, it will fetch 12,00,000 and with that he can than double earnings in the next three years, said the
purchase 1,070 shares of Kotak Mahindra Bank that Morgan Stanley report. Valuations are not cheap at
would generate a profit of 7%. This could attract high 18.8x F16e P/E, but sustained earnings compounding is
net worth investors and institutions holding Kotak likely to keep the multiples intact. On ING Vysya Bank,
sharers as well as some of the long-tem investors. Morgan Stanley expects asset quality pain to decrease
and revenue growth to improve in line with the
recovering macro climate.

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ING Vysya has 19 cr. shares in issue, which will result country has risen to 90 from 84 in 2005/06 thanks to
in an issue of 13.77 cr. shares of Kotak Bank. Kotak the entry of some foreign lenders. In the past, foreign
already has 76 cr. shares in issue, which means it will banks have shown interest in M&As but the RBI is not
see a shareholding of 90 cr. shares. At the current price comfortable as these banks operate as a branch of their
of 1,200, that’s a combined valuation of over about parent companies. The RBI has issued guidelines that
108,000 cr. for the merged bank, which will have profits allow foreign banks to operate or convert into wholly-
of around 3,500 cr., or about a P/E of 30. Even if it owned subsidiaries of their parent companies in India,
were to grow profits to, say 4,000 cr. this year, the thereby opening the door for selective M&As.
current price values the bank at 27 P/E which is a tad
Proponents of consolidation argue that there are
high.
too many banks in India. The counter-argument is that
This merger won’t majorly change the company’s Brazil, another emerging-market economy, has more
financials in the near term. Today’s move might have a than 160 banks while the UK has more than 300 banks
smart one, on the back of solid global liquidity, but we and the US has thousands of lenders. There can be no
at Capital Mind believe this move may not last too long, two opinions, however, that no Indian bank is of a
and that much of it hinges on a definite cut in RBI’s global size. SBI is the largest bank of India recognized
rupee rate, which as we’ve talked about in Capital Mind as a largest lender. It has a assets base of $300 billion. It
Premium, isn’t quite looking that definite. is less than tenth of the $3.2 trillion of Industrial and
Commercial Bank of China’s Assets. The largest UK
Another point to note is that RBI will definitely
bank, HSBC, has assets of close to $2.8 trillion while
have to introduce new banks. We don’t have that many
the biggest US bank, JP Morgan, has assets of $2.5
private banks (just 19, will now fall to 18) and the
trillion. Clearly, the only way Indian banks can expand
government isn’t exactly trying to sell their stake fast in
rapidly and reach global size is by M&As. Another
public sector banks. In order to grow, we need a banking
problem of the Indian banking system is that after SBI
system that is better, not just plump and fat. (31%
there is a huge drop in size; ICICI Bank, the second-
CASA Ratios Come on, now, this is a hugely inefficient
largest lender, is one-third the size of SBI in terms of
banking system, that benefits from lack of competition,
total assets.
that’s all) If the RBI fast tracks the creation of new
banks, it won’t look great to give current banks a P/E of The Kotak-ING Vysya deal has sparked
27. speculation that some other old private-sector banks
could be the target of large lenders. Old private-sector
From last decades there are few example available
lenders, including Dhanlaxmi Bank, Lakshmi Vilas
on bank merger but there are no two large bank merge.
Bank, Karur Vysya Bank, and South India Bank have a
It is either between mid size bank or large bank with
share of around five per cent in deposits and advances.
very small bank. The recent merger which we have
So even if one large private bank acquires half a dozen
discussed in this paper was between the new generation
such lenders, it won't create a meaningful size for the
banks with old private sector bank (Kotak Mahindra
acquirer. C. Jayaram, Joint MD at Kotak Mahindra
Bank vs ING Vysya Bank)."The objective of this
Bank, says consolidation has been talked about for a
merger is growth," said by Uday Kotak.
long time. "Hopefully, this [Kotak-ING merger] will set
The main objectives of Kotak bank is to meet a off some thinking both in the private as well as the
target of 1000 branches latest by 2016 along with this it public sector," he says
wants to expand its business in insurances, advance
In fact, for more than a decade, there has been talk
financial services and mutual funds to expand its
of encouraging consolidation to create a few banks of
banking network.
the size of SBI. But there has been little action on the
ground. The only exception being IDBI, which was
CONCLUSION allowed to acquire United Western Bank in 2006. SBI,
too, had made some progress in merging with itself two
Why are bank mergers in India so few and far subsidiaries - State Bank of Saurashtra and State Bank
between? "It is partly because of restrictions imposed of Indore - but there are still five units left to be merged.
by the Reserve Bank of India (RBI), especially on
foreign banks, on M&As and also the public sector Govt. has lots of exception that consolidation
nature of the banking system," says the CEO of a process of banking institution will give greater millage
private-sector bank who does not wish to be named. towards economic growth. Arun Jaitley( Finance
Today, state-run banks dominate the banking system Minister, GOI) in his budget( Union Budget) in July,
with three-fourth market share in deposits and loans. talked about the government being open to suggestions
The number of commercial banks operating in the for consolidation of state-run banks. But merging large

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 Merger and Acquisition Deal Brings Leveraging Synergy – An Analysis of Kotak Mahindra Bank & ING VYSYA Bank

state-run banks is easier said than done. There are

REFERENCES
legacy issues; staff too old to adapt, overlapping of
branches and products, and resistance from employee
[1] J. Fred Weston & Samuel C. Weaver,(2002),“
unions, among others.
Corporate Restructuring”, Tata McGraw Hill
There are some who question the merits of Publishing Company Limited, New Delhi.pp.3
consolidation. The size and scale shouldn't be the sole
[2] H.R. MACHIRAJU, Mergers Acquisitions and
criterion for M&As, and customers should be the focus
Takeovers, New Age International (P) Limited,
of banking services. They say the RBI's differentiated
2003, Page 169
licensing is the way forward. The RBI's decision to
grant bank licenses to infrastructure lender IDFC and
Bandhan Financial, a microfinance institution, and the
intention to set up payment banks and small banks will
take banking services to a whole new customer set. RBI
Governor Raghuram Rajan also recently cautioned on 
merging weak banks. "If two unhealthy banks were
merged, then the created entity will also be unhealthy
and could create a bigger problem in the economy," he
said.

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