Mergers and acquisitions are common business practices in any sector. Companies acquire to expand and grow. Banking is one of it. Last year, Kotak Mahindra bank acquired ING Vyasa – a leading private sector bank. The combined entity will be known as Kotak Mahindra bank. This is the first time in the history of Indian financial services sector that a merger of such high magnitude has taken place. Both the banking brands are well established in the banking sector.
With so many foreign banks entering the Indian market, the banking sector is more lucrative. The government has taken many initiatives like liberalization in foreign direct investment, nationalization of banks earlier to it. It has resulted in many new players to operate at regional and national level. But not many big mergers and acquisitions have taken place till now. This deal will open up avenues for many banks to look for collaboration with other banks to expand and outgrow.
It will make Kotak Mahindra as the 4th largest bank in India. The total business of the bank with this merger will be INR 2.25 Lakhs crore.All branches of the bank will be Kotak Mahindra branches. Compared to ING Vyasa, Kotak Mahindra is a relatively new bank. ING Vyasa is a very old bank which is almost 8 decades old. Kotak Mahindra is 3 decades old. So it is a merger of two different cultures. A merger of a bank which has restored faith in customers since pre-independence period with a new bank which is more youthful and vibrant in approach.
Kotak Mahindra already has a strength of 29000 employees. With the merger, the total strength will be close to 40000 employees. The combined strength of both the banks will be working towards a common goal to achieve more customer satisfaction. This will really make the competition scenario in the banking sector to be more interesting. Nowadays even public sector banks are geared up to providing superior customer service by introducing innovative products, using technology, increasing the reach etc.
The bank along with this merger is also taking some other initiatives like entry into general insurance space, acquisition of new mutual funds schemes etc. Earlier in 2015, RBI and competition commission of India approved the merger. For any kind of merger, the approval of shareholders is also required. So even that approval was taken from shareholders at an extraordinary general meeting.
The merger resulted in reducing the promoter stake of Kotak Mahindra. Stock market sentiments were very positive because of this merger. It led to appreciation in stock value of Kotak Mahindra bank. Now the total deposit and advances of Kotak Mahindra are more than INR 1 Lakhs crores. With more than 1000 ATMs and branches, the bank has extended its reach to serve a maximum number of customers.
Surprisingly, the bank also saw a dip in its net profit in the next quarter after the acquisition. But this was largely due to the higher provision cost accounted for its acquisition of ING Vyasa bank.