(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Una Galani
MUMBAI, April 10 (Reuters Breakingviews) - India’s lending
opportunity is too good to miss. A mooted merger of Axis Bank
and Kotak Mahindra Bank would create a $44
billion giant, the country's second-largest lender by market
value after HDFC Bank. That would create a strong
institution well-positioned to capitalise on any credit boom.
Uday Kotak, the billionaire owner of the $25 billion bank
bearing his family name, says he would consider buying New
Delhi's 11.5 percent stake in Axis if it were sold. He has also
said a planned fundraising could aid acquisitions. That has
fuelled speculation he wants a deal with the partly state-backed
rival despite Axis insisting that talk of a union is baseless.
An all-share deal would allow the tycoon to take a smaller
stake in a larger entity, and meet rules requiring him to cut
his shareholding from around 33 percent to 20 percent by the end
of next year. He also believes consolidation is inevitable. So
getting larger helps ensure the bank will be a survivor.
The attraction of any deal would not be about cost-cutting
but growth, through offering a bigger suite of products in a
wider network. Axis has a big presence in corporate term
lending, for example, which Kotak Mahindra does not.
The bad-loan crisis crippling state banks explains why most
private-sector lenders avoided that segment, favouring personal
loans and mortgages instead, or safer corporate services like
transaction banking. But when the next credit cycle sours,
protection for creditors should be stronger thanks to a new
Indian credit growth is anaemic but confidence in the
economy is building and state banks will remain distracted and
weak even if they are bailed out. That leaves a huge
opportunity, and explains why investors like Blackstone
are now venturing into the private debt market.
Valuation will be key to any tie-up, of course. Kotak
Mahindra trades on almost four times forward book value, twice
the valuation of Axis. The latter has almost three times the
assets, but a much higher ratio of bad loans. If the love of
loans is strong, India could yield a new banking giant.
On Twitter twitter.com/ugalani
- Uday Kotak, executive vice chairman of India's Kotak
Mahindra Bank, said his board would look at the merits of buying
the government's 11.5 percent shareholding of rival Axis Bank if
it were up for sale.
- "We want to grow in the financial sector and we want to
grow sensibly", he said in an interview with the Economic Times
published on April 5, adding that the bank would use proceeds
from a planned share sale to fund potential acquisitions, among
- On April 2, Kotak told Press Trust of India his bank was
open to "change that is bold and can be game-changing" and that,
in the long-term, he envisioned only three to five large banks
in the country. India has seven major private-sector banks.
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(Editing by Quentin Webb and Nicolle Liu)