A union of strength

The billionaire broker turned banker Uday Kotak pulled off a coup in the banking world with the acquisition of the Bengaluru based ING Vysya Bank in an all-share deal.

It is one of the biggest acquisitions in recent times and, with ING in its pocket, Kotak Mahindra Bank will have a market cap of over Rs 1 lakh crore.

One significant advantage of this acquisition is that it gives Kotak Mahindra Bank (KMB), which is strong in west and north India, more than a foothold in the south as ING Vysya is strong in Karnataka, Andhra Pradesh and Telangana.

It also makes KMB the fourth largest bank in the country and strong competition to the big three ICICI Bank, HDFC Bank and Axis Bank.

What makes this merger different is that it is between two strong banks, and this could be a trend towards consolidation in this sector going forward.

Earlier it was always a takeover of a sick bank by a healthy bank. ICICI Bank, for example, has taken over three sick or weak banks.

Whilst this merger may not do much for financial inclusion, it will certainly open new horizons to depositors. ING’s depositors get four per cent interest against the six per cent that KMB pays, so ING Vysya depositors stand to benefit.

Thirty eight per cent of ING’s loans are to SMEs and Kotak and the SMEs could benefit once manufacturing picks up. Mr Kotak has been innovative in providing wide choices to his depositors and, with ING’s Netherlands-based parentage, he could expand even further globally.