Mumbai: Having sealed a deal to merge ING Vysya Bank with Kotak Mahindra Bank, eminent banker Uday Kotak has said that the merger presents a significant opportunity for international cooperation with Dutch giant ING Group.
The all-share deal, valued at about Rs 15,000 crore, would create India's fourth largest bank with a combined balance-sheet size of over Rs 2 lakh crore and market value of over Rs 1 lakh crore.
Besides, the deal is also likely to provide a significant opportunity for foreign investors to take an exposure to the Indian banking industry through the merged entity, which would have only 46.9 percent foreign ownership as against a permitted level of up to 74 percent, Kotak Mahindra Bank's chief Uday Kotak said.
Post the merger, Dutch financial services giant ING, currently the main promoter of over 80-year-old ING Vysya Bank, would become a shareholder in the merged entity with 6.5 percent stake and would remain invested for minimum one year.
Kotak, who heads nearly 12-year-old Kotak Mahindra Bank, expressed confidence that the deal would provide significant opportunities for international cooperation, in addition to huge synergies in domestic markets and in various product segments and on digital platform.
"I see a very significant opportunity for international cooperation. Post this merger, ING Group will be a 6.5 percent shareholder of the merged entity and I see a significant opportunity for cooperation between the two parties including for all their international clients wanting banking facility in India and our Indian clients wanting ability to do global financing and business.
"So, the whole synergy out of this merger we think we can produce from ING, that can be significant. ING will remain invested for a minimum period of one year post this merger," he added.
Kotak replied in affirmative when asked whether such an international cooperation can continue even if ING decides to exit after expiry of mandatory one-year period.
"We have anyway known ING for a long time and we are very confident that we can build on this relationship," he added.
"The other big area on the international side is that ING is one of the most advanced bank on the digital play and we are quite excited about the digital play as well. That's another area of synergy that we are looking forward to.
"So, when we look at all these, we actually feel that this is a marriage almost made to order for both parties," he added.
"The other important point is that the merged entity, one of the challenges which ING Vysya Bank would have faced was the cap on their foreign ownership. The maximum foreign ownership allowed in a bank in India is 74 percent. They were already at about 71 percent," Kotak said.
"On the other hand, the combined entity will have foreign ownership of only 46.9 percent post the merger. Therefore, there is a significant headroom and liquidity opportunity for global investors for participating in this bank.
"This is at a time when most of large banks in India are already almost full-up on the foreign ownership. We think that the shares of the merged entity will be very significantly liquid and it will provide a great opportunity for investors to invest in a highly liquid and a high quality financial institution," he added.
Kotak said that the main purpose of this deal is a significant compatibility between the two banks.
"Kotak Mahindra Bank has very significant presence in the West and the North and our total branch network between these two regions is 80 percent.
"In case of ING Vysya Bank, their network in South is 64 percent of their total branch network. Therefore it is almost like a perfect fit if you look at the two branch networks together.
"We have a total of 1,200 branches combined. Therefore, it enables us to focus on building synergies together. We also see a very significant opportunity in products and distribution together," he added.
Giving examples, he said that Kotak Mahindra Bank is a very significant lender and the largest bank financier in the tractor finance business.
"ING Vysya Bank has a very limited presence in tractor finance, but it has got a large number of branches in South.
"We believe that products like tractor finance, commercial vehicles, there is a market in all those places which they were not currently not active in all those areas and therefore on a combined basis we can leverage these complimentary skills.
"Similarly, we have a whole host of products like wealth management, mutual fund, life insurance products of our companies for which their distribution network can be leveraged to distribute those products.
"The other area that we are very excited about is SME business where ING Vysya Bank is very active. If really have to make the Make In India dream happen, it will have to be through SMEs.
"Therefore, the model which ING Vysya Bank has for SME businesses, including for trader communities in South, is very strong. We can leverage this model and make this a truly national model focussed on SMEs. We think that there is a significant opporunity for us to do this in West and North also. That we think is a big plus," Kotak said.
