Axis-Kotak merger talk rife in spite of official denial
Shares of private banks Axis Bank Ltd and Kotak Mahindra Bank Ltd have shot up by 3.38% and 8.31%, respectively, since December amid speculations of a potential merger among them. Officials from the two companies have denied any such deal. However, last week Kotak Mahindra founder Uday Kotak refused to comment on the speculation but added "we will always keep an open mind."
RBI has instructed Kotak promoters to reduce stake
On February 1, the Reserve Bank of India (RBI) had asked promoters at Kotak Mahindra to reduce their stake in the company from 33.6% (as of December 2016) to 15% by March 2020. An acquisition is one way to bring down promoter holdings.
How is Axis Bank performing?
For the quarter ending December 31, 2016, Axis Bank reported a net profit of Rs 580 crore. It was lower by 73% from the corresponding period in 2015 because of higher provisions to cover bad loans. The government is looking to offload its 12% stake in the Bank to meet the Rs 72,500-crore divestment target for next year as announced in the Budget.
How is Kotak Mahindra performing in comparison?
Kotak Mahindra reported a net profit of Rs1,249.94 crore for the quarter ending December 31, 2016, up by 33% from the corresponding period a year earlier. Kotak's advances rose to Rs. 1.29 trillion, 12% higher in a year. Total advances for Axis Bank rose 10% to Rs3.47 trillion. Kotak has a market-capitalization of Rs 1.4 lakh crore while Axis's is Rs. 1.16 lakh crore.
What will the potential merger result in?
The merger between the two banks would be the biggest consolidation in the private banking sector. Together, they could be worth around Rs 2.5 lakh crore, which would make the newly merged entity the second most valuable bank in the country after HDFC Bank.
