Two people familiar with the matter said that Kotak Mahindra Bank Ltd. is exploring a potential acquisition of smaller rival Indian Industrial Bank. If such a deal is reached, it will greatly expand Kotak Mahindra’s business in the Indian banking industry, especially in the retail sector. According to people familiar with the matter, Kotak Mahindra Bank Ltd., backed by Asia’s richest banker, is studying the acquisition of India’s smaller rival, IndusInd Bank Ltd.. This move will enable the company to create the country’s eighth largest financial company by assets. One of the two people quoted above said that Kodak Mahindra’s promoters and their counterparts in the Industrial Bank of India are discussing mergers through share swaps. Since the negotiations are private, they requested anonymity.
In Mumbai’s early trading on Monday, IndusInd’s share price rose 4.1%, while Kotak Mahindra’s share price fell less than 1%. This transaction will strengthen Kodak Mahindra’s position as one of India’s major private banks, increasing its assets by approximately 83%. It will also provide a lifeline for IndusInd, whose market value fell 60% this year to $6 billion after the company was hit by concerns about deterioration in asset quality and reduced low-cost deposits. Kotak acquired the local subsidiary of ING Groep NV in 2014 for 1,500 crore rupees.
To be sure, the two sides are still conducting exploratory negotiations and have not yet made any decisions. The market value of Kotak Mahindra Bank is Rs. 2.75 trillion rupees, and the Indian Industrial Bank is worth about rupees 50 billion. People familiar with the matter said in June that the Central Bank of India had postponed plans for the Hindusja brothers to increase their stake in IndusInd earlier this year. Kodak Mahindra’s 2.7 trillion rupees market value makes it the third largest lender in India by value. In the past year, IndusInd’s stock price has fallen 64% because investors are concerned about the founder’s behavior in borrowing money from its stock. The merger discussion came when the Hinduja family, the promoters of IndusInd Bank, were involved in a family dispute, which was being heard in a London court. In September, IndusInd Bank raised 328.80 billion rupees through a preferential distribution to promoters and other investors.