 "RBI policy allows ING to hold 10% in merged entity: Uday Kotak")
A day after Kotak Mahindra Bank acquired ING Vysya Bank in an all share deal, the management agreed that there are some challenges which will be addressed in a systematic manner, besides throwing some light on the opportunities as well.
“There is an element of fat in the business and we will address it in an evolutionary manner…We are aware of the challenges and we want to make the business productive”, said Uday Kotak, Executive Vice Chairman and MD, Kotak Mahindra Bank in an analyst conference call.
However, he tried to allay the fears and said that the bank is not looking at any quick monetisation and will deal with the 'fat' in the system in a phased manner. Kotak said that they are not looking at employee layoff or branch rationalisation at the moment.
Kotak Mahindra Bank on Thursday announced it was acquiring Bengalaru-headquartered ING Vysya Bank in an all-stock deal. ING shareholders will get 725 Kotak Bank shares for every 1,000 shares they hold. The deal implies a price of Rs 790 for each ING Vysya share, based on the average closing price of Kotak shares during the month to November 19, valuing the deal at around Rs 15,000 crore.
Analysts also raised concerns about ING Vysya’s high cost-to-income ratio of 55.26%, which is 339 basis points higher than Kotak's 51.87%. However, Kotak believes this will have a short term impact. "A higher short term cost-to-income ratio is a cost to grow the market. Our focus is to continue costs which add muscle and rationalise ones that add fat.”
The high interest payouts on savings bank account is also seen as a short term blip by the management. Upon merger, all depositors will now get same interest rate as is applicable to Kotak's savings deposits (which is 6% above Rs one lakh while ING Vysya offers 4%). As a result the combined entity will take an annual hit on profits to the tune of Rs 140-145 crore, if the savings rate is maintained at 6%.
After the merger, Dutch group ING will hold a 6.5% stake in the merged entity, which is more than the 5% holding allowed for any single investor in a bank (above 5%, RBI approval is necessary). However, Kotak clarified that this will not be a concern for the group as post merger completion and subject to regulators’ approval, ING will have no foreign branches in India. And as per Reserve Bank of India norms if ING has no branch in India then it can hold up to 10% stake in an Indian bank.
Kotak would also leverage ING’s expertise in international corporate banking, the management added. Currently, Kotak group has presence in several international locations but Kotak Mahindra Bank does not have any offshore branches as of now. ING Vysya has a strong international clientele as a result of ING Groep.
“ING also has a large network in Europe and there are 800 ING clients that have business in India and this can be levaraged both inbound and outbound,” said Sareen.
In addition to key synergies, Kotak plans to offer tractor financing to ING Vysya customers in Andhra Pradesh and Karnataka and also expand its product suite in the international market. "We would strongly focus on building international relationship with ING. We look forward to learn about high quality practices of ING Vysya in SME business, digital banking opportunity and international co-operation,” added Kotak.
ING Vysya currently has about 3,000 unionised employees whose remunerations are based as per industry settlements. Kotak added that these employees will be given an option to stay on these remunerations if they opted for it. The management also has no plans to stop other benefits such as pension, etc for these employees.
The management is meeting the ING Vysya Bank officers’ association on Monday.
“There is an element of fat in the business and we will address it in an evolutionary manner…We are aware of the challenges and we want to make the business productive”, said Uday Kotak, Executive Vice Chairman and MD, Kotak Mahindra Bank in an analyst conference call.
However, he tried to allay the fears and said that the bank is not looking at any quick monetisation and will deal with the 'fat' in the system in a phased manner. Kotak said that they are not looking at employee layoff or branch rationalisation at the moment.
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Uday Sareen, CEO designate, ING Vysya Bank, had also emphasised on cost effectiveness in the long term, but had clarified that the bank will not be undertaking any immediate cost cutting measures.
Kotak Mahindra Bank on Thursday announced it was acquiring Bengalaru-headquartered ING Vysya Bank in an all-stock deal. ING shareholders will get 725 Kotak Bank shares for every 1,000 shares they hold. The deal implies a price of Rs 790 for each ING Vysya share, based on the average closing price of Kotak shares during the month to November 19, valuing the deal at around Rs 15,000 crore.
Analysts also raised concerns about ING Vysya’s high cost-to-income ratio of 55.26%, which is 339 basis points higher than Kotak's 51.87%. However, Kotak believes this will have a short term impact. "A higher short term cost-to-income ratio is a cost to grow the market. Our focus is to continue costs which add muscle and rationalise ones that add fat.”
The high interest payouts on savings bank account is also seen as a short term blip by the management. Upon merger, all depositors will now get same interest rate as is applicable to Kotak's savings deposits (which is 6% above Rs one lakh while ING Vysya offers 4%). As a result the combined entity will take an annual hit on profits to the tune of Rs 140-145 crore, if the savings rate is maintained at 6%.
After the merger, Dutch group ING will hold a 6.5% stake in the merged entity, which is more than the 5% holding allowed for any single investor in a bank (above 5%, RBI approval is necessary). However, Kotak clarified that this will not be a concern for the group as post merger completion and subject to regulators’ approval, ING will have no foreign branches in India. And as per Reserve Bank of India norms if ING has no branch in India then it can hold up to 10% stake in an Indian bank.
Kotak would also leverage ING’s expertise in international corporate banking, the management added. Currently, Kotak group has presence in several international locations but Kotak Mahindra Bank does not have any offshore branches as of now. ING Vysya has a strong international clientele as a result of ING Groep.
“ING also has a large network in Europe and there are 800 ING clients that have business in India and this can be levaraged both inbound and outbound,” said Sareen.
In addition to key synergies, Kotak plans to offer tractor financing to ING Vysya customers in Andhra Pradesh and Karnataka and also expand its product suite in the international market. "We would strongly focus on building international relationship with ING. We look forward to learn about high quality practices of ING Vysya in SME business, digital banking opportunity and international co-operation,” added Kotak.
ING Vysya currently has about 3,000 unionised employees whose remunerations are based as per industry settlements. Kotak added that these employees will be given an option to stay on these remunerations if they opted for it. The management also has no plans to stop other benefits such as pension, etc for these employees.
The management is meeting the ING Vysya Bank officers’ association on Monday.