Potential Kotak-IndusInd merger could be India’s biggest bank deal
Kotak Mahindra Bank Ltd’s potential takeover of IndusInd Bank Ltd would create India’s eighth-largest lender by assets at a time when the nation is battling one of the world’s worst bad debt problems.
In what could be the country’s biggest-ever banking deal, Kotak Mahindra—backed by Asia’s richest banker Uday Kotak—is exploring a takeover of its smaller rival, people with knowledge of the matter said this week. A combination would boost its assets to ₹7 lakh crore ($950 billion) and cement Kotak’s position as India’s fourth-largest private bank, closing the gap with Axis Bank Ltd.
“Kotak has always found it difficult to build scale organically,” according to a report by Macquarie Capital Securities analysts, led by Suresh Ganapathy. “Acquiring IndusInd Bank would result in Kotak’s asset book, loan book and branch network increasing by 85%, 94% and more than 100%, thereby giving it tremendous scale/size benefits.”
Talk of the merger and Kotak’s unexpected profit growth has already pushed the
Acquiring IndusInd Bank could cement Kotak Mahindra Bank’s position as India’s fourth-largest private bank.
lender ahead of rival ICICI Bank Ltd. to become India’s secondlargest by market value. Shares have surged 15% this week, taking the bank’s market capitalization to about ₹3.1 lakh crore. If the deal goes ahead through a share swap at IndusInd’s current price, Kotak’s market value will soar by about ₹46,450 crore, placing it well ahead of rival ICICI.
A spokesman for Kotak declined to comment on the takeover plans, while a representative for IndusInd denied the report.
India’s almost $2 trillion financial sector—home to more than 20 private sector banks
and over 10 state-run lenders— is struggling to contain the fallout from the Covid-19 pandemic that’s expected to shrink the economy by the most in four decades. Banks came into the year already weakened by a two-year-old shadow lending crisis that had eroded capital.
India’s bad loan ratio— already the worst among major countries—is set to worsen further and may soar to 12.5% by March, hampering any hopes for an early recovery.
With Kotak and IndusInd facing similar soured debt ratios on their loan books, a deal is unlikely to impact the lenders’ bad debt too much.