M&A Critique
Merger Of Ing Vysya And Kotak Mahindra Bank

Merger Of Ing Vysya And Kotak Mahindra Bank

The banking industry is largely fragmented in India with more than half of the commercial banks being state-run entities. Also amongst them, only two of them figure among the world’s 100 largest banks. Besides, there have not been many mergers in Indian banking space and the merger of ING Vysya Bank with Kotak Mahindra Bank is one of the major deals since private sector leader ICICI Bank’s takeover of Bank of Rajasthan about four years ago and Axis Bank acquiring erstwhile UTI Bank.  The Kotak Mahindra and ING Vysya,   both are private sector banks, run by professional managers, and similar in size with a degree of commonality in business and risk approaches.

The merger of ING Vysya Bank with Kotak Mahindra Bank is one of the major deals in the private sector banking space

The Deal:

The proposed merger is an all-stock merger. 1000 shares of Rs.10 each of ING Vysya will receive 725 shares of Rs.5 each of Kotak Mahindra Bank.

This exchange ratio indicates an implied price of Rs.790 for each ING Vysya share based on the average closing price of Kotak shares during one month to November 19, 2014, which is a 16% premium to a like measure of ING Vysya market price. The proposed merger will result in the issuance of approximately 15.2% of the equity share capital of the merged Kotak.

If we calculate the premium as on 01/12/2014:

The price of 1 share of Kotak Mahindra Bank   Rs. 1200
Therefore the price of 725 shares Rs. 8,70,000
The price of 1 share of ING Vysya Bank Rs. 834
The price of 1000 shares Rs. 8,34,000
Premium to shareholders will be Rs.36,000 which is 4.31%

Amalgamation is subject to the approval of shareholders. Other approvals required are –

  • Reserve Bank of India
  • Competition Commission of India and
  • Other regulatory approvals

Shareholding Pattern

About Companies

About Kotak Mahindra Bank:

Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a steady and confident journey leading to growth and success.

Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The bank offers personal finance solutions of every kind from savings accounts to credit cards, distribution of mutual funds to life insurance products. Kotak Mahindra Bank offers transaction banking, operates lending verticals, manages IPOs and provides working capital loans. Kotak has one of the largest and respected Wealth Management teams in India, providing the widest range of solutions to high net worth individuals, entrepreneurs, business families and employed professionals.

About ING Vysya:

ING Vysya Bank Ltd is a premier private sector bank with retail, private and wholesale banking platforms that serve over two million customers. With over 80 years of history in India (former Karur Vysya Bank) and leveraging ING’s global financial expertise, the bank offers a broad range of innovative and established products and services. The Bank, which has close to 10,000 employees, is also listed on Bombay Stock Exchange Limited and National Stock Exchange of India Limited. ING Vysya Bank was ranked among top 5 Most Trusted Brands among private sector banks in India in the Economic Times Brand Equity – Nielsen survey 2011.

The bank was formed from the 2002 acquisition of an equity stake in Indian Vysya Bank by the Dutch ING Group.

About ING Group:

ING is a global financial institution of Dutch origin offering banking services through its operating company ING Bank and holds significant stakes in listed insurers NN Group NV and Voya Financial, Inc. ING Bank’s 53,000 employees offer retail and commercial banking services to customers in over 40 countries.

ING draws its experience and expertise, commitment to excellent service and its global scale to meet the needs of a broad customer base, comprising individuals, families, small, businesses, large corporations, institutions, and governments.

Rationale of the Merger

  1.       Revenue Synergies & cost efficiency:
  •     Less need for branch expansion.
  •     Save on product introduction costs.
  •     Origination cost savings – higher throughput of products through the network.
  •     Save on overlap of infrastructure.
  1.    Benefits to Employees:
  •     Experience, expertise, and diversity of employees is a significant asset for ING Vysya
  •     ING Vysya employees will have growth opportunities across Kotak group.
  •     Kotak employees would be part of a larger and deeper pan India franchise.

The employees of ING Vysya will also be at the benefit as Mr.Kotak has announced that there will be no drastic job cuts post-merger. Employees are the major concern in the service industry. As the employees will be satisfied, there will be no post-merger difficulties.

  1.  To Customers:
  •     ING Vysya’s diverse customer segments with more than 2 million customers, will now have access to Kotak’s wide product suite across financial services.
Particulars ING Vysya Kotak Kotak (Merged)
Branches (nos) 573 641 1214
ATMs (nos) 635 1159 1794
Employees (nos) 10,591 29,220 39,811
Customers (millions) 2 8 10

After the acquisition, the prevailing interest rate of the acquiring bank is applicable on all savings accounts. So the account holders of the acquired bank could gain if the rate is higher than that offered by their existing bank. Since ING Vysya offers a 4 percent annual interest rate and Kotak Mahindra gives 6 percent for a balance of over Rs 1 lakh, the ING Vysya account holders stand to gain. For a balance of up to Rs 1 lakh, they can earn an interest rate of6 per cent per annum now.

  1.   Wider Coverage and Balanced Footprint:
Branch Density Complementary in Key Cities Branches ING Vysya1 Kotak Kotak (Merged)
West 12% 46% 30%
North 20% 34% 27%
South 64% 15% 38%
East 4% 5% 5%
Total 573 641 1,214

If we go through the table of branch density, a number of branches of ING Vysya are more in South Region. As far as Kotak Mahindra is concerned it has less number of branches in South Region whereas branch density in west and North Region is more. The merger would give Kotak Mahindra a wider coverage and balanced footprint in three regions.

Financial Comparison of Kotak Mahindra Bank:

(Rs. In crores)

Particulars 2013-2014 2013-14 ( Merged) Percentage increase
Net Total Income 10,923 13,576 24.29%
Profit After Tax 2,465 3,169 28.56%

Comparison of half yearly results for FY 2015:

                                                                                                                 (Rs. In crores)

Particulars H1FY15 H1FY15 ( Merged) Percentage increase
Net Total Income 6,617 8,057 21.76%
Profit After Tax 1,416 1,740 22.88%

It seems that in both of the cases, the percentage of Increase in PAT is more than Net Total Income.

After the announcement of merger share price Of Kotak Mahindra Bank rose from Rs.1078 to Rs.1200 and the share price of ING Vysya increased from Rs.728 to Rs.816.

Regulatory approvals:

As banks are not companies registered under TheCompanies Act, 1956, it needs to follow the separate procedure for approval of the merger from the shareholders.

  • As per Section 44A of the Banking Regulation Act, 1949, the draft scheme of amalgamation has to be approved by the shareholders of each banking company by a majority in number representing two-thirds in value of the shareholders.
  • Before convening the meeting for the purposes of obtaining the shareholders’ approval, the draft scheme of amalgamation needs to be approved individually by the Boards of Directors of the two banking companies.
  • A dissenting shareholder is entitled, in the event of the scheme being sanctioned by the Reserve Bank, to claim from the banking company concerned, in respect of the shares held by him in that company, their value as determined by the Reserve Bank when sanctioning the scheme and such determination by the Reserve Bank as to the value of the shares to be paid to the dissenting shareholders shall be final for all purposes.
  • As per RBI act, no promoter can exercise voting rights more than 10% so getting an approval of public shareholder is one of the challenges. In this case, though, such approval is almost a pre-gone conclusion though the legal aspects entail the following.

The first thing both banks need is approval from their shareholders. That approval threshold is based on those present and voting at the shareholder’s meeting. The resolution needs the approval of ‘a majority in number representing two-thirds in value of the shareholders’ of those present and voting including proxies. Two-thirds, that is 67 percent, which in the case of both banks would have been easy in the ordinary case, because in each case the promoter owns approximately 40 percent. So in both cases, assuming full attendance at the meeting of every owner of every share – the maximum public support needed would be 27 percent or even less. But banking regulations cap an individual’s voting rights in a bank to 10 percent, which means Uday Kotak cannot exercise full 40 percent vote and nor can ING. Hence in both cases, they will need public support than they would have needed otherwise.


Imagine that Kotak Bank equity capital was 100 shares and all 100 shares were present at the shareholder meeting. 67 shares would need to vote in favor of the deal. Of that 67, Uday Kotak has 40 shares, so public shareholder support needed would be 26. But Uday Kotak cannot exercise all 40 shares, he can vote on only 10. Hence, the base becomes 70 shares as 30 are non-voting. 2/3rds of 70 is 47 shares. Of that 47, Uday Kotak has 10. So he now needs 37 public shares in his favor. Same is the case for ING.

Our view:

The two largest private banks in the country, HDFC Bank, and ICICI Bank, have taken over small banks in the past. The Reserve Bank of India has also had to prescribe direct mergers of banks to ensure that one of the merging entities do not collapse. But the Kotak-Vysya marriage is completely voluntary and has been made for strategic reasons. After evaluating the transaction, we can conclude that merger is done from the view of cost avoidance rather than cost efficiency.  It will help both banks, their shareholders and customers and the industry in general. Both banks have different geographical bases and customer segments. The limited reach in terms of presence and profiles had constrained both of them. The merger will enable them to complement each other and make a good business fit. It is the acquisition by Kotak of 573 branches which is much cheaper than the cost of setting up a new branch. The deal also addresses the requirement that promoters’ holding in the bank should come down.


The banking industry is one, where having a critical mass is the sine qua non for meeting competition. Regardless of the other factors how so ever meritorious, without the critical mass the best of the banks is bound to either vegetate or be a target for getting gobbled up by a larger bank sooner or later. The main aspect of the critical mass is the geographical spread and manpower, which this deal seeks to address more than anything else. ING Vysya is firmly grounded in the South with a well experienced human resource and Kotak Mahindra in the West and North. Together they will stand up to any competition if they continue to focus on their strengths and carve out a niche for themselves.


M & A Critique