Uday Kotak exploring the takeover of smaller rival IndusInd Bank
Sponsored and backup by the richest banker of Asia, Kotak Mahindra Bank Ltd., has been recently engaged to takeover it’s smaller rival IndusInd Bank Ltd. This movement is believed to fetch the nation’s 8-largest financial firm by assets.
The co-founder and chief executive officer of Kotak Mahindra is UdayKotak. In order to achieve an all-stock acquisition, UdayKotak is looking at this possibility to take over with bright endeavours. There has been a preliminary discussion regarding this takeover between UdayKotak and the Hinduja family so that the IndusInd Bank founders can stabilize a stake in the lender after the deal. This would also breach down Kotak’s position as one of the leading private banks in India and ascend it’s assets and shares by about 83%.
This takeover will significantly become a lifeline to IndusInd which has seen bad times when its shares dropped to 60%. It was also hit down by worse asset quality and low-cost deposits. Kotak in 2014, took under it the local unit of ING Group NV for INR 150 billion, which is believed to be India’s largest takeover of a lender.
There have been several discussions for selling the Mumbai-based control of lender following a dispute between the four brothers of the UK-based Hinduja family over the family’s future estimated to be $11.2 billion.
Earlier in 2020, India’s central bank pushed back the Hinduja group’s plan to raise stake in IndusInd. Kotak Mahindra’s market capitalization of INR 2.7 trillion makes it India’s value-based third-largest lender party. This takeover is more advantageous considering IndusInd’s shares that have fallen 64% in the previous since its investors were highly disappointed. This was because they found that the company’s founders were borrowing capital against its shares, thus, worsening asset quality. The Hinduja brothers have later repaid this loan backed up by the bank’s shares.
The proposed merger will help Kotak strengthen its retail business as IndusInd Bank has a fast-growing retail, credits and deposits book. This will again undoubtedly expand Kotak’s presence in the banking sector of India, especially in the retail department. On the other hand, IndusInd Bank has made discussions regarding the merger via a share swap. Another reason for this takeover is because the market capitalization of IndusInd is around INR 50,000 crore while that of Kotak is INR 2.75 trillion.
The 4 Hinduja brothers – Ashok, Gopichand, Prakash and Srichan had signed a petition document in 2014 saying that the assets held by one brother shall be shared by all and each one of them will act as their executors. However, later, the family’s assets were separated in 2016. In September of the same year, through an allotment of INR 3288 crore to the promoters and investors. They have been hoping to receive an assent from the Reserve Bank of India to increase their bank stake that was later remained uncleared. IndusInd made a provision of INR 2566 crore for non-performing loans out of which INR 1203 crore was allocated for the provisions of Covid-19 people during the second quarter of this year.
IndusInd’s corporate lending book, by the end of June, was valued at INR 986 crore and the finance book constituted the rest. This is why it has only 2000 branches across the country serving around 26 million customers. However, Kotak Mahindra Banks works more spontaneously with just 1600 branches, 2516 ATMs and 24 million customers.
Currently, IndusInd advances grew to INR 1.98 trillion in the June quarter with an average deposit that grew by INR 2.11 trillion. On the contrary, Kotak’s total advances stood at INR 2.04 trillion with total deposits at INR 2.62 trillion by the end of the June quarter.