RBI approves Kotak Mahindra Bank's acquisition of Sonata Finance
What's the story
The Reserve Bank of India (RBI) has finally given the green light to Kotak Mahindra Bank's acquisition of Sonata Finance Pvt Ltd and its transformation into a business correspondent subsidiary, the private lender said in an exchange filing on October 20. Announced in February, the all-cash deal is valued at Rs. 531 crore. This acquisition will make Sonata Finance a wholly-owned subsidiary of Kotak Mahindra Bank, India's fourth-largest private sector bank.
Details
Sonata Finance's network and expansion plans
Sonata Finance, a microfinance company based in Lucknow, boasts a network of 450 branches and 2,879 employees. By the end of FY23, the company's gross non-performing assets (GNPA) and net NPAs were 2.27% and 0.68%, respectively, with advances totaling Rs. 1,859 crore. Kotak Mahindra Bank plans to tap into Sonata Finance's extensive network to offer a wider range of products and services to its customers.
What Next?
Previous acquisitions and growth in microfinance
Previously, Kotak Mahindra Bank acquired BSS Microfinance for Rs. 139 crore in September 2016. Since then, the bank has seen major growth in the microfinance segment, with its microfinance business surging by 91% to Rs. 6,963 crore in June from the previous year. The acquisition of Sonata Finance is anticipated to further bolster the bank's presence in this sector.
Insights
The rising trend of microfinance among Indian banks
This development also underscores the growing interest of Indian banks in the microfinance sector, which holds the potential to promote financial inclusion and provide access to credit for underserved communities. Several banks have recorded sizable growth in the microfinance segment in the April-June quarter.