Kotak-ING Vysya merger is positive, says ICRA

The credit rating agency says the deal will improve operating profile of Kotak, create cross-selling opportunities

The proposed merger of Bengaluru-based ING Vysya Bank with Kotak Mahinda Bank (KMB) will improve operating profile of the merged entity through enhanced branch presence, according to ratings agency Icra.

The lower cost to build incremental branch infrastructure and cross-selling opportunities and diverse credit portfolio are positive for the combined entity, rating agency said in a statement.

The merger, which is subject to necessary regulatory approvals, would be positive for the profile of the merged bank although near- to medium-term challenges would remain.

It would create strong cross-selling opportunities for investment banking, broking and life insurance products to corporate and retail relationships acquired. The credit portfolio would be diversified due to the complementary nature of operations.     

The client profile for the merged bank is expected to be complementing. KMB has strengths in commercial and consumer banking and ING Vysya is more focussed on SME and wholesale lending.

The merged entity will remain strong with an estimated capital adequacy of 16.51 per cent (including unaudited profits) as on September 2014.

In the near term, there could be a dip in net interest margins and profitability matrices as compared to standalone indicators for Kotak Mahindra Bank. They are expected to remain strong at over 4 per cent and around 1.5 per cent, respectively.

In addition, the acquisition helps the promoter group to bring down its overall shareholding to 34 per cent post-merger from 40 per cent pre-merger. As per regulatory requirement, the promoter shareholding should fall below 30 per cent by December 2016.

The ability of the group to manage the integration-related issues (including cultural and technology) and leverage, the available synergies at the earliest would be a key monitorable.

Headline asset quality for the merged bank will be comfortable with gross non-performing assets of around 1.7-1.8 per cent.