Is billionaire Uday Kotak on a hunt for M&As in a post-COVID world?

Managing director and chief executive of Kotak Mahindra Bank Ltd, Uday Kotak, could be eyeing merger and acquisition (M&A) opportunities in the wake of coronavirus. Among the objectives listed out by the Kotak Mahindra Bank for raising additional capital of close to billion dollars was the fresh M&A opportunities since coronavirus has wrecked many players in financial sector.

"...financing business opportunities which may either be organic or inorganic, which may arise pursuant to the economic events driven by the outbreak of covid 19," states Kotak's resolution on raising capital.

The financial services business is going to be the worst affected both on assets side as well as liabilities (funding). Consolidation opportunities are likely to come in segments like micro finance institutions (MFIs), affordable housing finance companies, small and new age NBFCs and many fintech start ups in the area of lending, payments and value added services.

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The new money that Kotak has raised kills many birds with one stone. First, the equity dilution helps the promoter Uday Kotak reduce his stake to meet the regulatory requirement of 26 per cent by August this year. In fact, Kotak also sold a part of his stake to meet the 26 per cent level.

Second, the additional capital strengthens the private bank's balance sheet at a time when there is a fear of the unknown. The banking sector is already staring a new NPA cycle as the loan moratorium book is around Rs 40 lakh crore for the entire banking system.

The private bank, which is already at a comfortable capital adequacy ratio of close to 18 per cent as against the regulatory minimum of 9 per cent, has headroom to go for acquisition opportunities. In the past, the bank has also done all stock deals to acquire a company.

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Four years ago, the bank acquired one of the largest micro finance entity BSS Microfinance in an all cash deal. The acquisition not only provided Kotak a platform to enter the micro loan segment but also opened space for scaling up the model across the country.

In 2014, Kotak Bank surprised everyone by acquiring the Bengaluru-headquartered ING Vysya Bank in an all stock deal. The acquisition of a bank of almost Kotak's size  pushed the mid sized bank amongst the top four private banks in the country. In the recent past, Kotak Mahindra Bank's name has often speculated for likely acquisition of Axis, Yes Bank, RBL and Laxmi Vilas Bank.

Expert suggest that billionaire Kotak would certainly look for opportunities when there are distressed assets all around. The bank had earlier bought the credit card business of foreign bank Barclays in India.

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