Merger-Mahindra Bank & ING Vysya Bank

Merger has been materialised between Kotak Mahindra Bank & ING Vysya Bank

1. Presented by : RAVI Title: Merger-Kotak Mahindra Bank & ING Vysya Bank Affiliation: REVA UNIVERSITY

2. S UMMARY OF THE CASE

3. Amalgamation of business entities is a world-wide phenomenon. One of the tools for this is mergers and acquisitions. The question for growth and the ever-changing dynamic business environment make M&A a frequent phenomenon in corporate circles. The M&A in financial sector of India are driven with the objective of leveraging the synergies expected to arise out of the consolidation, with this context Kotak Mahindra Bank Ltd and ING Vysya Bank Ltd merged to make fourth largest private banking the Indian banking industry. The merger of two banks promises a lot in the Indian banking industry and is looked upon as a move towards consolidation of the sector. Kotak Bank looking to increase its presence in the country especially in the western and southern parts of the country where its presence is less as compared to other parts, the strategic rationale of merger and its implication on the banking industry as a whole has to be looked upon. The case deliberates the aspects of merger and acquisition and the history , objectives and challenges of the merger to the organisation. In the light of available circumstances, this case delineates the real life issues and strategic rationale of the merger and the benefits which can be derived from the merger. The case provides enough material to discuss the dynamics and the mergers in the Indian banking industry . The case also provides enough material to analyse and discuss the synergies and leverages of the merger deal of ING Vysya .

4. Transferee Bank Kotak Mahindra Bank Limited Transferor Bank ING Vysya Bank Limited Mode of Transaction The deal was scheme of amalgamation merging ING Vysya into Kotak. Shareholding in Kotak before the Merger Promoter Group: 40.02% Public Shareholding: 59.98% ￭ FIIs: 36.85% ￭ ￭ Foreign Banks: 4.25% ￭ Foreign Bodies: 2.04% ￭ ￭ Others: 1.41% Shareholding in ING Vysya before the Merger Promoter Group: 42.51% Public Shareholding: 57.49% FIIs: 26.98% ￭ ￭ Financial Institutions/ Banks: 1.76% ￭ ￭ Individuals: 8.14% ￭ Others: 1.82% Post merger shareholding in Kotak Promoter Group: 33.99% Public Shareholding: 66.01% ￭ ING Group: 6.48% ￭ FIIs: 33.58% ￭ Domestic: 19.12% ￭ FDI: 6.83% C onsiderati on As part of the amalgamation, 725 shares of Kotak were issued in lieu of every 1000 shares of ING Vysya to every shareholder of ING Vysya. Uday - Kotak Public Kotak 40.02 % 59.98 % Public Merge ING Vysya ING Group Share Swap 725 : 1000 42.51 % 57.49 % 33.99 % 59.53 % DEAL SNAPSHOT PRE MERGER POST MERGER Uday - Kotak ING 6.48 % Public ￭ ￭ ￭

5. THE PARTIES/CHARACTERS

6. KOTAK MAHINDRA BANK LIMITED ING VYSYA BANK LIMITED

7. FACTS FILE

8. September 2013 : Reports of ING’s intention to sell its stake in ING Vysya and Kotak being the front runner. November 20, 2014 : Scheme is approved by the board of directors of Kotak and ING respectively. January 7, 2015 : The Scheme is approved by the Shareholders of Kotak and ING respectively. February 12, 2015 : Merger receives CCI approval. April 1, 2015 : Appointed Date of the Scheme. April 1, 2015 : Date on which RBI approved of the Scheme. July 3, 2015 : Date of FIPB approval to increase the aggregate foreign Investment in Kotak, pursuant to the Deal. September 30, 2015 : Long Stop Date. CHRONOLOGY OF EVENTS:

9. OBJECTIVES

10. OBJECTIVES OF AMALGAMATION OBJECTIVES OF THE STUDY

11. PROBLEM IDENTIFICATION

12. SHOT TERM Major problem is related to human resource management: cultural deference's and employee union strikes Difference in salary structure of employees LONG TERM Different deposit SCHEMES Re-pricing of existing Vysya Bank savings account deposits could negatively impact margins

13. SWOT ANALYSIS

14. RECOMMENDATIONS AND SUGGESTIONS

15. Re-pricing of existing Vysya Bank savings account deposits could negatively impact margins hence Kotak’s existing scheme could be the best idea to achieve the expected returns. upfront costs related to merger (stamp duty, re-branding, technology integration, etc) to be offset by slower branch expansion as i see a lower need for KMB to grow organically post-acquisition . Merged firm expect to see synergies to make RoA marginally accretive. However, I do not see RoA of the merged entity reaching the levels of standalone Kotak Bank pre-merger in the near to medium term, hence it is recommended that the Kotak has to liquidate NPA’s to maximise RoA. The challenges in terms of integration of two different banking cultures of the 10,000 employees of Vysya Bank , around 3,000 are unionised and come under the wage structure of IBA (the Indian Banks Association ) hence salary levels and wage increment should be determined by negotiation with the unions . it is suggested that the pending deal helps to reduce promoter stakes from 40% to 34% . Promoter stakes include Uday Kotak ( which has the largest stake, at 39.7 % ). This all share deal significantly contributes in moving towards this goal. As per the analysis, factoring in a 100% coverage ratio for Vysya Bank’s un provided NPLs ( non-performing loans, incremental impact ( Rs 0.85 bn ) on the merged P&L (profit & loss account). Hence the management should take the conservative route in estimating NPL costs. Upfront costs of the merger ( legal, rebranding, technology, etc. ) should likely to weigh on near-term profitability with the latter partly offset by a higher SA mix, if not it results in an adverse impact of 10 bp of assets—10% of Kotak Bank’s earnings .

16. CONCLUSION

17. I conclude that there are various advantages of merger and acquisition in banking sector like increase in customer base , increase in branches , increase in number of product and service offered , increase in number of ATM network , increase in number of employees , benefits of expertise employees , access to various region in the country , increase in deposit and advance amount. There are also various challenges like difference in deposit rate and interest rate , difficulty in managing nonperforming assets , difficulty in managing the employees because difference in salary structure , etc. after analysis post merger financial performance we can say that after merger and acquisition , there is increase in net interest income, increase in profitability, increase in number of customers, improve liquidity, share price has been increased.

18. QUESTION AND ANSWERS

19. 1. Do you think the merger between Kotak and I ng Vysya would help the Indian banking industry? justify The bank sector to begin coalescing around a few major players after the country's central bank in April granted licences to set up two new banks. Deals, though, have been rare in a banking industry hampered by restrictive regulation, reluctant investors and strong unions) The Indian banking sector has witnessed many M&As in the recent past. The last decade saw some big players like the ICICI bank and HDFC bank acquiring Bank of Rajasthan and Centurion Bank of Punjab. There is also a talk in the business circles that 2 public sector banks, United Bank of India and Dena bank will be merged with bigger entities. One of the prominent motives behind a takeover bid in the banking arena is to reap the benefits of economies of scale. M&A help banks achieve significant growth in their operations and in minimizing expenses. For instance, M&As help banks to save the costs that are incurred on opening of new bank branches. Competition is minimized when there is less number of banks leading to an increased market share. M&A also helps better utilization of resources. This study analyses the takeover deal of ING Vysya bank by Kotak Mahindra bank and the synergies gained by the deal. This merger brings together two strong industry players to form a more robust and fundamentally sound bank. ING Vysya Bank is a respected household name in the South Indian banking sector, with a legacy of eight decades. Kotak Mahindra group has made its mark in financial services arena as a conglomerate addressing all customers’ needs under one banner. The merged entity ING Vysya Bank and Kotak Mahindra Bank Limited will definitely leave its impact on the national banking scene.

20. Economies of scale and operations will arise out of the proposed merger resulting in benefits to shareholders, employees and customers. The synergies e from the merger are listed below: Increase in Branch network: Operationally, the deal offers multiple synergies. The new combined entity will be the 4th largest private bank in India, in terms of branch network of 1,214 branches. Capital Adequacy Ratio: The individual CAR for FY stood at 18.9% and 16.76% and this ratio was expected to be 17.6% after the merger. Customers and employees will benefit from the combined Kotak having a wider geographical spread, expertise across customer segments, such as SME, HNI, Corporates, and on products such as private banking, asset management, insurance, investment banking, NRI offerings etc . Kotak’s strong capital position potentially avoids capital raising and attendant dilution in the near to medium term for ING Vysya shareholders. Additionally , with ING Vysya nearing the capital for foreign shareholding, the merger would yield more liquidity with significant foreign headroom in Kotak even after merger, with foreign shareholding at 47 %. 2. Discuss the synergies of the merger between ING Vysya and Kotak.

21. ADDITIONAL INFORMATION

22. Extraordinary General Meeting of the Members of Kotak Mahindra Bank Limited on Wednesday, January 7, 2015at 4:00 p.m.

23. (L to R) Dipak Gupta, Joint Managing Director, Kotak Mahindra Bank. C Jayaram, Joint Managing Director, Kotak Mahindra Bank. Uday Kotak, Executive Vice Chairman and Managing Director, Kotak Mahindra Bank . Uday Sareen, CEO & MD Designate, ING Vysya Bank. Shailendra Bhandari, CEO & MD.

24. Thank you