Kotak Mahindra Bank Ltd. is looking for acquisitions as the billionaire Uday Kotak-backed lender looks to deploy its additional capital amid changes in India’s financial industry.
The private sector bank, India’s fourth-largest by assets, is set to evaluate potential targets that will drive its strategy, according to CEO Ashok Vaswani. Asked whether a transaction of more than $1 billion was possible, he said the company had the capability to do jumbo deals.
“Today Kotak has much more capital than regulators require,” he said in an interview. “We will not waste that capital.” Vaswani started his role in January 2024 after spending decades abroad in top positions such as head of Barclays Bank UK and Citigroup Asia Pacific.
According to Vaswani, the Mumbai-based bank looks at three criteria while studying M&A – does it add to its agenda, does the valuation make sense and what is the cost of diverting attention from management.
His comments come as the pace of consolidation in India’s financial sector is increasing. Japanese and Middle Eastern buyers are expanding into the world’s fastest-growing major economy, where Prime Minister Narendra Modi’s government is pushing to strengthen state-backed lenders and attract private and foreign capital.
Kotak Mahindra Bank’s capital-to-risk ratio stood at 22.6% at the end of December, well above peer levels and regulatory requirements, indicating it has enough firepower for a potential acquisition. Vaswani said that although the financier will always remain “opportunistic” on inorganic expansion, internal growth is its primary focus.
The lender has struck deals including buying a personal-loan portfolio from Standard Chartered Plc and acquiring micro-lender Sonata Finance in 2024. Recently, it expressed interest in acquiring a stake in IDBI Bank Ltd for $8 billion, but did not proceed further. Separately, the company is one of the suitors for Deutsche Bank AG’s Indian retail assets, people familiar with the matter said. Vaswani declined to comment on Deutsche Bank’s interest in the property.
Analysts said Kotak Mahindra Bank has found it challenging to deploy its additional capital in recent years. As per regulatory norms, lenders in India must maintain capital at a minimum of 9% of their risk-weighted assets.
“The bank has done selective deals and is not taking incremental risks to grow its book aggressively,” said Amit Khurana, head of equities at Dolat Capital. “While there may be scope to deploy additional capital to grow organically, we see limited opportunities and targets available to make jumbo deals.”
Vaswani’s appointment was a departure from that of its financier founder, who had led the bank since its inception as a shadow lender in 1985.
This journey has not been easy for Vaswani. After he took charge, some senior officers of the company left. A few months later, it was prevented from adding new online customers due to technology shortcomings. Stress in the broader microfinance industry also forced the bank to rein in growth.
“I feel good about where we are now,” Vaswani said. “We didn’t try to put lipstick on a pig – we actually fixed the problems.” The ban on adding new online customers was lifted after about 10 months.
Despite being an outsider, Vaswani said having the founder available as a sounding board gives him an edge over many banking heads. He said, “I’ve seen many CEOs spend millions of dollars on consultants and even more on trainers and advisors. In my case, I have someone who is extremely knowledgeable, very smart and has built an incredible business.” “If I’m thinking of something over Sunday afternoon tea, I can ring him up and pitch him an idea.”
Kotak is Asia’s richest banker with a net worth of $14.4 billion, according to the Bloomberg Billionaires Index, and owns more than 25% of the lender as of the end of December.
Vaswani said the arrangement works because the founder has “tremendous talent in the game”. The two bring complementary strengths, he said, citing Kotak’s skills as a dealmaker and his abilities to build processes and drive automation across the bank.
Refreshing the leadership bench has also been a priority for Vaswani.
Instead of extending tenure for senior executives, the lender opted to build a “young, hungry and lean” leadership team for Vaswani to drive the next phase of growth. At the same time, he said, the financial services giant integrated its brand and sharpened the strategy around four customer segments: affluent customers, mass-market consumers, small and medium enterprises and institutional customers.
Kotak Mahindra Bank currently lags behind private sector rivals such as HDFC Bank Ltd, ICICI Bank Ltd and Axis Bank Ltd. Although it looks to expand, the bank is prioritizing profitability and Vaswani said its growth must remain disciplined. “Scale is not exciting for the sake of size. What matters is scale with relevance.”