IDBI Bank Merger With Kotak Mahindra May Take 2–3 Years To See Results: Hercules Advisors' Founder
Kotak has a history of acquisition and after it acquired ING Vysya Bank, it took three to years for them to integrate the bank into their own books, says Aditya Shah.
IDBI Bank Ltd's likely merger with Kotak Mahindra Bank Ltd, which may acquire the government's 45% stake, will take two–three years to see positive results, according to Aditya Shah, founder of Hercules Advisors.
"It does take two–three years minimum to iron out the merger problems, and for Kotak to revert back to its original margin of 4.5% to 5%," Shah told NDTV Profit in a conversation.
Kotak Mahindra Bank is set to be frontrunner in acquiring the central government's stake in IDBI Bank, with Fairfax and Oaktree Capital also in the running.
IDBI Bank's market cap of over Rs 1 lakh crore makes it challenging for investors to buy a 60% stake in the bank, sources said. Kotak Mahindra Bank may leverage equity currency and employ a part-cash, part-equity merger deal to buy IDBI Bank.
The government plans to finalise the sale of its stake in IDBI Bank in the financial year 2026. While the Centre currently holds 45.48% stake in the lender, another 49.24% is owned by the state-run Life Insurance Corp. of India.
IDBI is a good candidate for takeover. It's beneficial for Kotak Mahindra Bank as it will expand 50–60% of its current book size.Aditya Shah
He said that this merger comes with a liability, noting that the government had spent a lot of time cleaning up the books, from peak non-performing asset status of 27% gone down to 2%.
The Hercules Advisors founder noted that Kotak has a history of acquisition, and after it acquired ING Vysya Bank, it took three to years for them to integrate the bank into their own books.
"As a result of the bigger wholesale book, margins for Kotak will dive down over a shorter period of time and then it will move on," Shah said.
He said that Kotak is not buying IDBI for its assets but for its reach and its liability franchise which is a deposit franchise that IDBI received.
With that mode of deposit, it nearly doubles the size of Kotak Bank, according to Shah.
"In the shorter term, on the advances side, there will be erosion of margins, will take some time for the bank to stabilise the acquisition. For longer term shareholder, it does make sense to acquire this bank," Shah stated.
