Set up in 1985, the Kotak Mahindra Group was one of
the major financial aggregates in India. In February 2003, Kotak Mahindra
Finance Ltd. (KMFL), the leader organization of the Group, got a licence in
banking from the Reserve Bank of India (RBI). With this permit KMFL turned into
the principal non-banking organization in India to wind up into plainly a bank – Kotak Mahindra Bank Limited.
The consolidated account statement of Kotak Mahindra Group was over Rs. 1.34
lakh crore. The sum-total assets of the Group remained at Rs. 20,554 crore
(roughly US$ 3.3 billion) as on September 30, 2014. The Group offered an
extensive variety of budgetary administrations that enveloped each sphere of
our day to day lives. From mutual funds, stock broking,life coverage, venture
managing an account to commercial banking, the Kotak Mahindra Group took into
account all the differing monetary requirements of people and the corporate
division. The Group had a wide dispersion arranged through branches and
franchisees spread crosswise over India, and worldwide in London, New York,
Dubai, Abu Dhabi, Mauritius and Singapore.
Kotak Mahindra Bank offered a total arrangement of
retail budgetary solutions for different client prerequisites. The Savings Bank
Account went past the customary part of reserve funds, and gave an extensive
variety of administrations through a far reaching suite of venture
administrations and other value-based accommodations like Online Shopping, Bill
Payments, ASBA, ActivMoney (Automatic TD clear in and Sweep-out) and so on.
Kotak’s Jifi was primarily a completely coordinated Social Bank Account that
reclassified advanced management of an account via consistently consolidating
long range informal communication channels like Twitter and Facebook with
standard banking procedures. KayPay was the first of its kind for agnostic
payments for Facebook clients that empowered a great many financial balance
holders exchange cash to each other at any hour of the day or night, without
the need of net banking, or knowing different ledger related subtle elements of
the payee. The bank offered an Investment Account where Mutual Fund
speculations were recorded and could be seen in a consolidated manner over
different reserve houses and plans. Further, there were advance items, for
example, Home Loans, Personal Loans, Commercial Vehicle Loans, and so on.
Remembering the various needs of the business group, KMBL offered complete
business arrangements that included administration parts like Current Account,
Trade Services, Cash Management Services and Credit offices.
Vysya Group : ING Vysya Bank
ING Vysya Bank Ltd was a chief private sector bank.
It had private, retail and discount saving money stages with a client base of
more than two million clients. With more than eighty years of history in India
and utilizing ING’s worldwide monetary skill, the bank offered a wide scope of
imaginative and 5 built up products and administrations over its 573 branches.
The Bank, which had near 10,000 workers, was additionally recorded in Bombay
Stock Exchange Limited and National Stock Exchange of India Limited. ING Vysya
was a global finance-related establishment of Dutch nationality offering
banking services and benefits through its working organization ING Bank. It
held critical stakes in recorded back up plans NN Group NV and Voya Financial,
Inc. ING Bank’s 53,000 workers offered retail services to clients in more than
In November 2014, an announced was made by Kotak
Mahindra Bank Limited regarding its acquisition of ING Vysya Bank Limited. It was
a full-share deal worth US$2.4 billion. The deal was the biggest in the Indian
banking sector. It created the fourth largest private bank in India with a
balance sheet size of Rs. 2 trillion and market capitalization of over Rs. 1
trillion. According to the know-hows of the banking sector, this deal helped
Kotak to expand its presence in India and to compete with other top-notch
private sector players in the Indian banking industry.
The whole purpose of the merger was to focus on
growth. Sustained growth was defined as the basis of building the future. The
primary driver of the merger were revenue synergies, complementarities, growth
potential and cost effectiveness over time. This was a horizontal merger within
the same industry, same line of business. The purpose was to become 4th largest
private sector bank by inorganic growth.
SYNERGIES FOR THE MERGER
Economies of scale and operations will arise out of
the proposed merger resulting in benefits to shareholders, employees and
customers. The synergies expected from the merger are listed below:
in Branch Network
Operationally, the deal offered multiple synergies.
The new combined entity would be the 4th largest private bank in India, in terms
of branch network. Before the merger, their individual positions were 4th and
8th respectively. The merger would give a boost to Kotak Mahindra Bank which
had set a target of 1,000 branches by 2016. While ING Vysya was predominantly
popular in the southern regions of India, Kotak had its presence in the
northern and western regions of India. With minimum overlapping, the merger
provided an opportunity to the Kotak Bank of a greater presence in regions not
yet covered by them. The merger brought in synergies in terms of the coverage
and this deal complemented both the banks in terms of geographic synergies. The
combined Kotak Bank would have 1,214 branches, with a pan-India network. The
following table gives a clear idea in terms of pre and post-merger presence of
Prior to the merger the Kotak presence in the west
was 46%, in the north 34%, south 15% and the east 5%. So, it had stronger
footprints in the west and the north which combined form 80% of their network.
Whereas ING Vysya had 64% of its 573 branches in the south of India.
Post-merger, the mix moved to the combined presence of 30% in the west, 27% in
the north, 38% in the south and 5% in the east. Kotak thus had a significantly balanced
portfolio between south, west and the north of India. Again, the interesting
aspect was the complementarity even within this network in the major cities.
Mumbai and Delhi was where Kotak has had around 90 branches each. About 35
branches in each of these cities belonged to the ING Vysya network. So combined
it went to 124 branches each. On the other hand, ING Vysya brought in
significant strength and positioning in the Bengaluru and Hyderabad markets. In
Bengaluru, ING Vysya had 40 branches versus 20 branches of Kotak. The combined
network would be 60 in Bengaluru. In Hyderabad, ING Vysya had 20 and Kotak had 8,
therefore on a combined basis 28. The combined strength was continued in the
west, which included Ahmedabad and Pune. The combined entity had an almost
equal presence in Chennai and Kolkata.
ING Vysya had a strong customer franchise for over
eight decades. It had a national branch network of 573 branches and deep
presence in South India, particularly in Andhra Pradesh, Telengana and
Karnataka. ING had a large customer base across all of its segments. The combined
bank would have 1,214 branches, with a wide-spread pan-India network, getting
both breadth and depth given the strong geographic complementarities between
Kotak and ING Vysya.
The customers of Vysya would be able to access the wide product suite
across financial services provided by the consolidated Kotak entity. “Digital”
a key strategic driver for both banks would be a priority for the merged Kotak
entity. ING Group, which had a successful global experience in this area, could
play a vital role to assist over time. Enhanced product suite to serve their
customers was one of the primary drivers for the merger. A wider distribution
to serve customers would also help the merged entity.
to International Business
In the past, ING Vysya had served a number of large
international corporates in India. The merged entity would leverage ING Group’s
international expertise and presence.
to SME Business
ING Vysya bank was particularly noted for the
best-in-class SME business. The bank’s lending spread across multiple sectors
with a predominantly higher presence in the Small Medium Enterprises (SME)
sector. While Vysya’s SME and business banking segments accounted for 38% of
its loan book, Kotak had a meagre 8% presence in this particular sector. The
customer base of Vysya in this segment was very huge. Thus the merger deal
helped Kotak diversify its book and increase its presence in the SME segment.
As on 30th Sep 2014, the advances and deposits of
ING Vysya bank were Rs. 39,558 crore and Rs. 44,652 crore respectively. The
corresponding figures for Kotak Mahindra bank were 81,418 crore and Rs. 66,311
crore. Current Accounts/ Savings Accounts (CASA) were approximately 33% of
ING’s deposit base and about 29% of Kotak’s. The merged entity was expected to
have a wider network.
Revenue Synergies and Cost
This merger has instantly
expanded the network of branches and ATMs. As a result, the Bank will save on
product introduction cost on account of readily available products and
The digital banking landscape would be a key growth
driver, and would complement the brick and mortar reach. The technologies used
by both the banks, Finacle (Kotak Mahindra Bank) and FIS (ING Vysya Bank) were
reasonably world class and over a period of time would work well with proper
and Cultural Synergy
Kotak had been rated among the best employers in the
country and had been renowned for its employee orientation and retention of
talent. ING Vysya had a diverse set of employees, who were experts in dealing
with different customer segments. The combined entity would generate ample
career opportunities for staff as well as a wider array of products to serve
their customers, aided by management development opportunities across different
businesses of Kotak Group. The Bank
would leverage the experience, expertise and diversity of a dynamic and
stronger employee base. Employees of the merged entity would have growth
opportunities across the Kotak Group, which would in turn enjoy a larger and
deeper pan-India franchise.
Medium Term Advantage
The other very interesting aspect was the medium
term advantage, which was particularly the strong presence of ING Vysya Bank in
Andhra Pradesh. At one stage, about a year before the merger, people would have
been wondering about the network of over 170 branches in Andhra Pradesh when
there was the whole issue of the division of the state. This was taken as an
advantage considering that the two states because both Seemandhra and Telangana
would be focused on growing their individual states. With the presence of over
100 branches in Seemandhra and 70 in Telangana, a right strategy would be
required to cope with the development of the two states. This could in fact
turnout to be an opportunity for the combined entity in the future.
and Customer Segments Complementarity
There were some of the areas where the ability to
really leverage the combined network was seen. Kotak Mahindra Bank had been one
of the large lenders in the tractor financing business amongst banks. With the
significant network of ING Vysya in Andhra Pradesh and Karnataka, they could provide
products like tractor financing all the customers including in rural and semi
urban Andhra Pradesh and Karnataka where there was a pretty deep presence of
Recovery steadily happens in the Indian economy
across the whole range of products, which includes commercial vehicles, car
finance, etc. Kotak Mahindra Bank has been traditionally well positioned in
these areas and would be able to effectively distribute these products to the
entire network of ING Vysya. Kotak Mahindra Bank especially in the past few
years had demonstrated an increment in its business of over 40%-45% in the SA segment
while ING Vysya, which had a pompous position in the trader and small
businesses community had a strength in the current account segment. Therefore, on
a combined basis again the synergies made it pretty strong in to grow both SA
and CA across the combined Kotak network.
The product suites like wealth management, asset
management and insurance businesses were to be provided as a combined entity. This
provided an opportunity to expand customer and product horizon and get a larger
share of customer wallet by serving customers nationally and internationally. The
ING relationship which was widely international, would give Kotak a global
reach through relationships with MNCs which ING would bring to the merged
entity. This would enable Kotak to serve the Indian arms of International
customers and at the same time be able to offer product to Indian customers
looking at international access.