Kotak Mahindra Bank net profit slips 56% post ING merger

This was largely due to higher provisioning costs which it accounted for relating to its acquisition of ING Vysya Bank

Salil Panchal
Published: Jul 30, 2015 03:18:01 PM IST
Updated: Jul 31, 2015 11:37:14 AM IST
Kotak Mahindra Bank net profit slips 56% post ING merger
Image: Vikas Khot
Uday Kotak Executive Vice Chairman and MD of Kotak Mahindra Bank

Kotak Mahindra Bank, India’s fourth-largest private bank by branch network, saw its quarterly net profit go down by 56 percent in the June-ended quarter, after accounting for the acquisition of ING Vysya Bank.

The bank – in its first earnings for the merged entity - reported a standalone net profit of Rs 189.78 crore, less than half of Rs 429.8 crore in the corresponding quarter a year earlier. This was largely due to higher provisioning costs which it accounted for relating to its acquisition of ING Vysya Bank. Kotak Mahindra Bank completed the merger in April this year. The bank acquired Bangalore-based ING Vysya Bank in an all-stock deal, valuing the smaller bank at $2.4 billion, in a deal announced last November.

“This is the full picture, post merger,“ says Uday Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank.

Kotak Mahindra Bank made four provisions: The first was towards retirement benefits of employees of the former ING Vysya Bank (amounting to Rs 339 crore). This related to provisioning for pensions, leave and gratuity, for which ING in the previous year had allocated Rs 32 crore, in its books.

The second provisioning was of Rs 305 crore towards non-performing assets (NPAs). The bank also made a provision of Rs 63 crore towards integration costs [with ING Vysya Bank]. At the time of the merger, Kotak calculated the integrated costs of the merger at Rs 200 crore.

The bank also provides for additional interest on savings accounts of Rs 30 crore. “With these, a significant amount of provisioning requirements of the combined entity is behind us. Going forward, for the rest of the nine months [July 2015 to March 2016], we expect incremental credit costs of 50 basis points on the combined balance sheet,” Kotak said.

He said the bank had completed the integration of the treasury and wholesale bank businesses of both the banks. “The entire process would be completed by April 2016,” he said. He said that the adjusted book of ING Vysya – as they had anticipated when they did the due diligence at the time the merger was announced – is in line with expectations.

The combined entity has total deposits of Rs 1,16,812 crore and advances of Rs 1,03,614 crore.

The gross NPAs as a percentage of total advances rose to 2.04 percent from 1.56 percent in the year-ago period. The net NPAs also increased to 0.93 per cent from 0.81 per cent, a bank statement said.

Shares of Kotak Mahindra Bank closed down 1.36 percent at Rs 716. 15 rupees at the Bombay Stock Exchange on Thursday.

The merger of ING Vysya with Kotak Mahindra propels the latter into the top ranks of India’s private lenders at number four [by branch network]. The combined entity will be a network of more than 1,260 branches and 1,942 ATMs across the country.

With the merger, Kotak Mahindra Bank is assured of a strong presence in Southern India, particularly in the states of Karnataka and Andhra Pradesh. Kotak Mahindra Bank has most of its branches in West and North India. Its strength is in corporate and retail banking while in ING Vysya’s case, it is in small and medium enterprise business (SMEs) operations, which will complement Kotak.

Uday Kotak said the bank will continue to expand its presence across India. “But it will be more measured. You will not see us opening 10,000 branches. It will be rifle shot than a machine gun.”

Kotak Mahindra Bank has expanded at a time when the Indian banking sector is still undergoing tough times, where credit growth is yet to pick up and non-performing asset levels for several banks are high.

India’s banking sector has not seen too many mergers in the private sector in recent times. The previous merger in the private banking space took place in 2010 when India’s largest private lender ICICI Bank acquired Bank of Rajasthan. Prior to that, in 2008, HDFC Bank acquired Centurion Bank of Punjab.

Besides the ING merger, Kotak Mahindra Bank has in the recent past picked up a 15 percent stake in multi-commodity exchange (MCX) and bought PineBridge’s mutual fund business. They have also announced their entry into general insurance and also tied up with Bharti Airtel for a payments bank licence.

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