Mumbai: Shikha Sharmas move to shorten her tenure as Axis Bank CEO has created a leadership vacuum at the private-sector lender, providing Asias richest banker Uday Kotak with the opportunity to make a bid for the bank, Japanese brokerage Nomura said in a report on Tuesday.
Axis has a loan book more than twice in size to that of Kotak Mahindra Bank, which is led by billionaire Uday Kotak. Nomuras report came a day after Axis said that Sharma would step down in December 2018, cutting short a new three-year term starting in June. The board had last year approved a new term for Sharma.
Kotak has the best opportunity to acquire Axis Bank now that Sharma has less than nine months left in her corner-office role, with the regulator continuing to mount pressure on the Axis board, and an industry-wide initiative underway to clean up asset quality, Nomura analysts Adarsh Parasrampuria and Amit Nanavati said in the report.
Nomura estimates a 2.15 swap ratio at current market prices, which means Axis Bank shareholders will get one Kotak share for every 2.15 shares held in Axis Bank. Kotaks stake will reduce to 17.6 per cent from the current 30 per cent, allowing him to meet the December 2018 target of RBIs requirements.
“For Kotak Bank, it is an opportune time… as Axis Bank has ramped up on the NPA recognition process and we believe the majority of the bad news is now known. (Also) since the time of the last merger talks, Kotak Banks stock has outperformed Axis Banks by around 30 per cent, making the acquisition more reasonable,” Parasrampuria and Nanavati said in the report.
A Kotak-Axis merger will make the largest private sector bank by way of branches, at 5,760 outlets. ICICI Bank has 4,860 branches. The merger will also create the second-largest domestic loan book for a private bank at Rs 6.16 lakh crore, just below HDFC Banks Rs 6.31 lakh crore.
“Kotak Bank would gain liability and retail asset size enough to rub shoulders with HDFC Bank and from the promoters perspective, this should aid in diluting the promoters stake down to RBIs requirements,” the report said.
The acquisition would help Kotak increase its total deposits five times to Rs 5.97 lakh crore from Rs 1.80 lakh crore and improve its CASA ratio from 47 per cent to 49 per cent, just a shade lower than the 50 per cent CASA of ICICI.
More importantly, the deal will help promoter Uday Kotak to dilute his stake in the bank to meet the central banks requirements. Kotak had sold less than 1 per cent stake in his bank in secondary market transactions in May last year to comply with the regulators direction to cut it to 30 per cent by end-June. Kotak must reduce his stake to 20 per cent by December this year, and to 15 per cent by March 2020.
Kotak shares closed at Rs 1113.60 apiece, while Axis shares ended at Rs 546 on the BSE on Tuesday.