TheKotak Group KotakMahindra Group Set up in 1985, the Kotak Mahindra Group was one ofthe major financial aggregates in India. In February 2003, Kotak MahindraFinance Ltd.
(KMFL), the leader organization of the Group, got a licence inbanking from the Reserve Bank of India (RBI). With this permit KMFL turned intothe 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. 1.34lakh 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 anextensive variety of budgetary administrations that enveloped each sphere ofour day to day lives. From mutual funds, stock broking,life coverage, venturemanaging an account to commercial banking, the Kotak Mahindra Group took intoaccount all the differing monetary requirements of people and the corporatedivision. The Group had a wide dispersion arranged through branches andfranchisees spread crosswise over India, and worldwide in London, New York,Dubai, Abu Dhabi, Mauritius and Singapore. KotakMahindra Bank Kotak Mahindra Bank offered a total arrangement ofretail budgetary solutions for different client prerequisites. The Savings BankAccount went past the customary part of reserve funds, and gave an extensivevariety of administrations through a far reaching suite of ventureadministrations and other value-based accommodations like Online Shopping, BillPayments, ASBA, ActivMoney (Automatic TD clear in and Sweep-out) and so on.Kotak’s Jifi was primarily a completely coordinated Social Bank Account thatreclassified advanced management of an account via consistently consolidatinglong range informal communication channels like Twitter and Facebook withstandard banking procedures. KayPay was the first of its kind for agnosticpayments for Facebook clients that empowered a great many financial balanceholders exchange cash to each other at any hour of the day or night, withoutthe need of net banking, or knowing different ledger related subtle elements ofthe payee. The bank offered an Investment Account where Mutual Fundspeculations were recorded and could be seen in a consolidated manner overdifferent reserve houses and plans.
Further, there were advance items, forexample, Home Loans, Personal Loans, Commercial Vehicle Loans, and so on.Remembering the various needs of the business group, KMBL offered completebusiness arrangements that included administration parts like Current Account,Trade Services, Cash Management Services and Credit offices. INGVysya 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 ofmore than two million clients. With more than eighty years of history in Indiaand utilizing ING’s worldwide monetary skill, the bank offered a wide scope ofimaginative and 5 built up products and administrations over its 573 branches.The Bank, which had near 10,000 workers, was additionally recorded in BombayStock Exchange Limited and National Stock Exchange of India Limited. ING Vysyawas a global finance-related establishment of Dutch nationality offeringbanking services and benefits through its working organization ING Bank. Itheld 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 than40 nations.THEMERGERIn November 2014, an announced was made by KotakMahindra Bank Limited regarding its acquisition of ING Vysya Bank Limited. It wasa full-share deal worth US$2.4 billion. The deal was the biggest in the Indianbanking sector. It created the fourth largest private bank in India with abalance sheet size of Rs. 2 trillion and market capitalization of over Rs. 1trillion.
According to the know-hows of the banking sector, this deal helpedKotak to expand its presence in India and to compete with other top-notchprivate sector players in the Indian banking industry.The whole purpose of the merger was to focus ongrowth. Sustained growth was defined as the basis of building the future. Theprimary driver of the merger were revenue synergies, complementarities, growthpotential and cost effectiveness over time. This was a horizontal merger withinthe same industry, same line of business. The purpose was to become 4th largestprivate sector bank by inorganic growth.PROJECTEDSYNERGIES FOR THE MERGEREconomies of scale and operations will arise out ofthe proposed merger resulting in benefits to shareholders, employees andcustomers. The synergies expected from the merger are listed below: Increasein Branch NetworkOperationally, the deal offered multiple synergies.
The new combined entity would be the 4th largest private bank in India, in termsof branch network. Before the merger, their individual positions were 4th and8th respectively. The merger would give a boost to Kotak Mahindra Bank whichhad set a target of 1,000 branches by 2016. While ING Vysya was predominantlypopular in the southern regions of India, Kotak had its presence in thenorthern and western regions of India. With minimum overlapping, the mergerprovided an opportunity to the Kotak Bank of a greater presence in regions notyet covered by them. The merger brought in synergies in terms of the coverageand this deal complemented both the banks in terms of geographic synergies.
Thecombined Kotak Bank would have 1,214 branches, with a pan-India network. Thefollowing table gives a clear idea in terms of pre and post-merger presence ofthe consolidation. Prior to the merger the Kotak presence in the westwas 46%, in the north 34%, south 15% and the east 5%. So, it had strongerfootprints 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% inthe north, 38% in the south and 5% in the east. Kotak thus had a significantly balancedportfolio between south, west and the north of India.
Again, the interestingaspect was the complementarity even within this network in the major cities.Mumbai and Delhi was where Kotak has had around 90 branches each. About 35branches in each of these cities belonged to the ING Vysya network. So combinedit went to 124 branches each. On the other hand, ING Vysya brought insignificant strength and positioning in the Bengaluru and Hyderabad markets. InBengaluru, ING Vysya had 40 branches versus 20 branches of Kotak. The combinednetwork 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 thewest, which included Ahmedabad and Pune. The combined entity had an almostequal presence in Chennai and Kolkata.
CustomerBaseING Vysya had a strong customer franchise for overeight decades. It had a national branch network of 573 branches and deeppresence in South India, particularly in Andhra Pradesh, Telengana andKarnataka. ING had a large customer base across all of its segments.
The combinedbank would have 1,214 branches, with a wide-spread pan-India network, gettingboth breadth and depth given the strong geographic complementarities betweenKotak and ING Vysya.The customers of Vysya would be able to access the wide product suiteacross financial services provided by the consolidated Kotak entity. “Digital”a key strategic driver for both banks would be a priority for the merged Kotakentity. ING Group, which had a successful global experience in this area, couldplay a vital role to assist over time. Enhanced product suite to serve theircustomers was one of the primary drivers for the merger. A wider distributionto serve customers would also help the merged entity. Accessto International BusinessIn the past, ING Vysya had served a number of largeinternational corporates in India.
The merged entity would leverage ING Group’sinternational expertise and presence.Thrustto SME BusinessING Vysya bank was particularly noted for thebest-in-class SME business. The bank’s lending spread across multiple sectorswith a predominantly higher presence in the Small Medium Enterprises (SME)sector. While Vysya’s SME and business banking segments accounted for 38% ofits loan book, Kotak had a meagre 8% presence in this particular sector.
Thecustomer base of Vysya in this segment was very huge. Thus the merger dealhelped Kotak diversify its book and increase its presence in the SME segment. Depositsand AdvancesAs on 30th Sep 2014, the advances and deposits ofING Vysya bank were Rs. 39,558 crore and Rs. 44,652 crore respectively. Thecorresponding figures for Kotak Mahindra bank were 81,418 crore and Rs. 66,311crore.
Current Accounts/ Savings Accounts (CASA) were approximately 33% ofING’s deposit base and about 29% of Kotak’s. The merged entity was expected tohave a wider network.Revenue Synergies and CostEfficienciesThis merger has instantlyexpanded the network of branches and ATMs. As a result, the Bank will save onproduct introduction cost on account of readily available products andinfrastructure.LeveragingTechnologyThe digital banking landscape would be a key growthdriver, and would complement the brick and mortar reach. The technologies usedby both the banks, Finacle (Kotak Mahindra Bank) and FIS (ING Vysya Bank) werereasonably world class and over a period of time would work well with properintegration processes.Employeesand Cultural SynergyKotak had been rated among the best employers in thecountry and had been renowned for its employee orientation and retention oftalent.
ING Vysya had a diverse set of employees, who were experts in dealingwith different customer segments. The combined entity would generate amplecareer opportunities for staff as well as a wider array of products to servetheir customers, aided by management development opportunities across differentbusinesses of Kotak Group. The Bankwould leverage the experience, expertise and diversity of a dynamic andstronger employee base. Employees of the merged entity would have growthopportunities across the Kotak Group, which would in turn enjoy a larger anddeeper pan-India franchise. TheMedium Term AdvantageThe other very interesting aspect was the mediumterm advantage, which was particularly the strong presence of ING Vysya Bank inAndhra Pradesh. At one stage, about a year before the merger, people would havebeen wondering about the network of over 170 branches in Andhra Pradesh whenthere was the whole issue of the division of the state. This was taken as anadvantage considering that the two states because both Seemandhra and Telanganawould be focused on growing their individual states.
With the presence of over100 branches in Seemandhra and 70 in Telangana, a right strategy would berequired to cope with the development of the two states. This could in factturnout to be an opportunity for the combined entity in the future.Productand Customer Segments ComplementarityThere were some of the areas where the ability toreally leverage the combined network was seen.
Kotak Mahindra Bank had been oneof the large lenders in the tractor financing business amongst banks. With thesignificant network of ING Vysya in Andhra Pradesh and Karnataka, they could provideproducts like tractor financing all the customers including in rural and semiurban Andhra Pradesh and Karnataka where there was a pretty deep presence ofING Vysya.ProductSuite Complementarity Recovery steadily happens in the Indian economyacross the whole range of products, which includes commercial vehicles, carfinance, etc. Kotak Mahindra Bank has been traditionally well positioned inthese areas and would be able to effectively distribute these products to theentire network of ING Vysya. Kotak Mahindra Bank especially in the past fewyears had demonstrated an increment in its business of over 40%-45% in the SA segmentwhile ING Vysya, which had a pompous position in the trader and smallbusinesses community had a strength in the current account segment. Therefore, ona combined basis again the synergies made it pretty strong in to grow both SAand CA across the combined Kotak network. The product suites like wealth management, assetmanagement and insurance businesses were to be provided as a combined entity.
Thisprovided an opportunity to expand customer and product horizon and get a largershare of customer wallet by serving customers nationally and internationally. TheING relationship which was widely international, would give Kotak a globalreach through relationships with MNCs which ING would bring to the mergedentity. This would enable Kotak to serve the Indian arms of Internationalcustomers and at the same time be able to offer product to Indian customerslooking at international access.
