Kotak Mahindra Bank's acquisition of ING Vysya is credit positive for the Uday Kotak-led...
Kotak Mahindra Bank’s acquisition of ING Vysya is credit positive for the Uday Kotak-led lender in the medium-term, while the operational integration would be a challenge, India Ratings said today.
The all-stock deal, valuing the Bangalore-based lender at Rs 15,033 crore, announced last Thursday will be “credit positive for Kotak Mahindra Bank over the medium-term unless integration challenges prove insurmountable,” it said in a note, adding, benefits of the buyout will accrue from FY17.
Kotak Mahindra will be able to maintain the “consistently superior” credit buffers even after the buyout, it said, affirming the bank’s rating at ‘IND-AAA’ with stable outlook.
The report said Kotak Mahindra’s strong buffers and above-average capitalisation will help it absorb any shocks on the asset quality front from ING Vysya.
“…the combined bank’s capitalisation, credit profile and profitability to remain akin to other ‘IND AAA’ rated private sector banks,” it said.
In a surprise move, Kotak Mahindra Bank announced an all-share deal to acquire ING Vysya Bank last week which will catapult it to the fourth spot among private sector lenders in terms of the network and also help its promoters pare their stake as per the wishes of RBI.
India Ratings said Kotak Mahindra Bank’s core tier-I capital adequacy ratio may slip to 16.5 per cent post merger from the earlier 17.8 per cent, but it will still be high as compared to peers.
It said Kotak Mahindra will benefit from the geographical complementarity of ING and also specifically mentioned its large current account base as a helping factor.
The re-pricing of the SME loans will help Kotak Mahindra mitigate the additional costs of higher interest rates to be given to the savings account holders of ING Vysya Bank, the rating agency said.
As for the cost of integrating both the businesses, the rating agency said saving on the branch expansion will help manage the hit, it said, adding benefits of the merger will start accruing from FY17 onwards. Post-merger Kotak Mahindra Bank will have 1,214 branches and over 1700 ATMs.
On the challenges front, it said aligning ING’s productivity with the benchmarks of Kotak Mahindra will be difficult, while the unionised workforce is also a worry.
The bank’s scrip, which gained handsomely on the day the deal was announced and after that, was trading down 2.51 per cent at Rs 1,169.45 on the BSE as against a 0.71 per cent correction in the broader Sensex at 1413 hrs.