Axis Bank imbroglio gives Kotak Mahindra Bank an opportunity: Nomura

The unfolding happenings at Axis Bank provides for a merger and acquisition (M&A) opportunity in the Indian banking space, feels foreign brokerage Nomura.

According to Nomura, the emerging scenario gives especially the Uday Kotak-owned Kotak Mahindra Bank a chance to look at Axis Bank post the exit of its present CEO Shikha Sharma in December this year.

"Our assessment suggests that Axis Bank will have to look for an external CEO. We believe this presents a great opportunity for Kotak Mahindra Bank to buy Axis Bank, which has got one of the largest liability/retail asset franchises," it said in a research report.

Several factors such as a very short time left in the CEO’s term at Axis Bank (nine months), RBI’s pressure on Axis Bank’s management/board and the ongoing asset quality clean-up exercise had made it a best time for Kotak to buy or merge with Axis Bank, it said.

``From Axis Bank’s perspective, we believe there will be limited push-back this time for any merger, given the loss of confidence that the regulator has expressed by not approving the renewal of the CEO’s term and a vacuum in top management,’’ Nomura said.

Nomura said that it was an opportune time for Kotak since Axis Bank had ramped on the NPA recognition process and the majority of the bad news was now known. "Since the time of the last merger talks, Kotak Bank’s stock has outperformed Axis Bank’s by 30%, making the acquisition more reasonable," it said.

Nomura also said .Kotak Bank would gain liability and retail asset size enough to rub shoulders with HDFC Bank, and, importantly from the promoter’s perspective, this should help in diluting the promoter’s stake down to the requirements stipulated by the RBI.