Introduction

Strategic Management - An Introduction

Strategic Management is all about identification and description of the strategies that managers
can carry so as to achieve better performance and a competitive advantage for their organization.
An organization is said to have competitive advantage if its profitability is higher than the
average profitability for all companies in its industry.
Strategic management can also be defined as a bundle of decisions and acts which a manager
undertakes and which decides the result of the firms performance. The manager must have a
thorough knowledge and analysis of the general and competitive organizational environment so
as to take right decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses,
Opportunities, and Threats), i.e. they should make best possible utilization of strengths, minimize
the organizational weaknesses, make use of arising opportunities from the business environment
and shouldnt ignore the threats.
Strategic management is nothing but planning for both predictable as well as unfeasible
contingencies. It is applicable to both small as well as large organizations as even the smallest
organization face competition and, by formulating and implementing appropriate strategies, they
can attain sustainable competitive advantage.
It is a way in which strategists set the objectives and proceed about attaining them. It deals with
making and implementing decisions about future direction of an organization. It helps us to
identify the direction in which an organization is moving.
Strategic management is a continuous process that evaluates and controls the business and the
industries in which an organization is involved; evaluates its competitors and sets goals and
strategies to meet all existing and potential competitors; and then reevaluates strategies on a
regular basis to determine how it has been implemented and whether it was successful or does it
needs replacement.
Strategic Management gives a broader perspective to the employees of an organization and they
can better understand how their job fits into the entire organizational plan and how it is coJai Hind College

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related to other organizational members. It is nothing but the art of managing employees in a
manner which maximizes the ability of achieving business objectives. The employees become
more trustworthy, more committed and more satisfied as they can co-relate themselves very well
with each organizational task. They can understand the reaction of environmental changes on the
organization and the probable response of the organization with the help of strategic
management. Thus the employees can judge the impact of such changes on their own job and can
effectively face the changes. The managers and employees must do appropriate things in
appropriate manner. They need to be both effective as well as efficient.
One of the major role of strategic management is to incorporate various functional areas of the
organization completely, as well as, to ensure these functional areas harmonize and get together
well. Another role of strategic management is to keep a continuous eye on the goals and
objectives of the organization.
Different Types of Strategy
Research and development strategy
Businesses cannot grow and survive without new products. It is the role of R&D specialists to
generate new product ideas, nurture them carefully and develop them fully into commercially
viable propositions. Where innovation proves to be a costly exercise imitation could also be tried
as a fruitful option. Many Japanese electronics companies were quite successful in copying
American technology and by avoiding R&D costs, improved their competitive strength
significantly.
Operations Strategy
This strategy outlines steps to keep costs under check and improve operational efficiency. The
focus is on arriving at decisions regarding plant layout, plant capacity, production processes,
inventory management etc.
Financial strategy
It deals with financial planning, evaluating investment proposals securing funds for various
investments and controlling financial resources. Thus raising funds, acquiring assets, allocating
funds to operations, using funds efficiently etc are all part of the strategy.

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Marketing Strategy
It deals with strategies relating to product pricing, distribution and promotion of a companys
offering important issues here cover what type of products at what prices through which
distribution channel and by the use of which promotional tool and sales force etc.
Human Resources strategy
HR strategy deals with hiring, training, assessing, developing rewarding motivating and retaining
the number and types of employees required to run the business effectively, internal (union
contracts, productivity indices, labor turnover, absenteeism accidents etc) and external factors
(labor laws, son of the soil, reservation, equal employment opportunity, employment of children
and women etc) need to be carefully evaluated while formulating HR strategies.
Constraints and strategic choice
Viewed collectively the R&D strategy should encourage innovation; marketing should stress
brand loyalty and reliable distribution channels of production should maintain long production
runs, cost reduction, finance should focus on cash flows and positive returns and HR department
should develop strategies for retaining and developing a stable workforce. Of course
organizations do come across constraints while formulating functional level strategies in several
forms, how to finance the proposals what kind of risk to be taken, how to combine suppliers and
make channel partners happy, how to encounter competitive retaliation etc. In any case while
selecting appropriate strategies at corporate business and functional level the following criteria
should be kept in mind.
Strategy Implementation:
Strategy implementation is the process of translation of strategies and policies into action
through the development of programs, budgets and procedures It is typically conducted by the
middle and lower level management but is reviewed by the top management. However, programs
and procedures are simply more detailed plans for the eventual implementation of strategy.
Unless the corporation is appropriately organized, programs are adequately staffed and activities
are properly directed these operational plans fail to deliver the goods. To be effective a strategy
must be implemented through the right organization structure and appropriate management
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practices. In addition, management must also ensure that there is progress towards, objectives
according to plan by instituting a rigorous process of control over important activities. The
following figure would help in understanding the process of strategy implementation.
Directing
People should be motivated to implement a new strategy in desired ways. It is not sufficient
merely to have people who can do the job; it is necessary to have people who want to do the job
the way you need it done. In addition to traditional motivational techniques managers should also
make use of modern techniques in order to inspire people to perk performances.
WHAT IS A FINANCIAL STRATEGY?
To get the most out of your financial resources and achieve sustainability you'll need to
successfully manage all your funding and financing sources in an overarching strategy for your
organization. Find out how to go about this and who to involve.
Why have strategies?
Many organizations manage income from a number of different funding and finance sources from donations, grants, contracts and income generated from trading.
A financial strategy enables your organization to assess your financial needs and the sources of
support required to meet your objectives and fulfill the organizational mission, whilst also
planning for continued growth to enable stability.
You're financial strategy will derive from your mission. So the first step is to clearly define why
you exist and you plan to achieve your mission before preparing any budgets.
What's your mission?
A mission statement is a brief declaration of an organizations purpose and
values - the reason why it exists. Your mission should be a long-term
statement of intent deriving from the vision that originally inspired the

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organization to form. It shouldn't be a detailed list of what you will do, how
you'll do it and when.
Focusing on your mission will help you move your focus from what you do, to what you want to
achieve.
Once your mission is clear you'll be able to set strategic goals (both medium and long term) that
set the direction of your organization.
With your direction clear you can create a coasted, timed and detailed work plan that outlines the
operational activities necessary to achieve each goal down to the day to day activities. This will
ensure that your mission and financial goals are complementary to each other rather than in
competition.
Whats the role of a finance function?
Rather than being seen as a separate function, just doing the books, your finance function should
be integrated within, and add value to, the overall planning and management of every
organization.
Your finance function - whether that is a team or an individual - can add value to both planning
and management. The key roles are:

Providers of information for decision-making

Business management.
Financial managers will need to assess what information they have, particularly on costs and
income projections to be able to control or plan the future.
What's the role of the trustee board?
The financial management role of a voluntary organization trustee board is quite different to a
commercial organization. The three main financial management functions of the board are
financialmonitoring, proceduresandmanagement.
Most voluntary organizations are financially accountable to a far greater number of stakeholders
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that commercial organizations being funded by a combination of tax concessions and money
from

the

general

public,

local

government

and

charitable

trusts.

The goal of maximizing shareholder value - which can be measured objectively - is not relevant
to non-commercial organizations. Instead, the whole trustee board must demonstrate value for
money and effectiveness, which by their nature are more subjective criteria.

A financing strategy is integral to an organisations strategic plan. It sets out how the
organisation plans to finance its overall operations to meet its objectives now and in the future.
A financing strategy summarises targets, and the actions to be taken over a three to five year
period to achieve the targets. It also clearly states key policies which will guide those actions.
Managing an organization's financial resources so as to achieve its business objectives and
maximize its value. Strategic financial management involves a defined sequence of steps that
encompasses the full range of a company's finances, from setting out objectives and identifying
resources, analyzing data and making financial decisions, to tracking the variance between actual
and budgeted results and identifying the reasons for this variance. The term "strategic" means
that

this

approach

to

financial

management

has

long-term

horizon.

At the most fundamental level, financial management is concerned with managing an

organization's assets, liabilities, revenues, profitability and cash flow. Strategic financial
management goes a step further in ensuring that the organization remains on track to attain its
short-term

and

long-term

goals,

while

maximizing

value

for

its

shareholders.

Strategic financial management also means that short-term goals may occasionally need to be
sacrificed to meet longer-term objectives. A typical example is when a loss-making company
trims its asset base through factory closures or headcount reduction in order to reduce operating
expenses. While such actions have a detrimental effect on near-term results because of
restructuring costs and other one-time items, it positions the company to achieve profitability in
the longer term.
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Financial Strategies
A large part of the business plan for any small business is the financial section of the plan. The
financial section includes the income statement, cash flow statement and balance sheet. For new
businesses, these financial statements will be projections, whereas for an existing the business
the section will contain several years of history as well as projections. In addition to statements,
the plan should include the financial strategies of the business in how finances will be handled.
Cash Flow Management
The income statement and balance sheet of a business may look great on paper, but if the cash is
not properly managed, the small business can quickly go under. Part of the financial strategy of
the business plan will detail how cash will be used in the business. This includes identifying an
amount that will always be in reserves as well as how major expenses will be paid. By laying out
the financial cash strategy ahead of time, it will make financial decisions easier about when to
write a check and when to access a line of credit during normal business practice.
Purchases
Any purchases made through the business, particularly large purchases, should have detailed
guidelines in the business plan. This will determine which purchases will be made with cash, a
line of credit and with a credit card. This strategy will also outline taking advantage of the terms
of suppliers. For instance, if a supplier offers 45-day terms, the business will wait until the end of
the term to make a payment. In addition, the purchasing strategy should specify if approval is
needed by a manager or board for purchases over a certain amount.
Collections
If the business is not properly managing its own receivable, it can be devastating to the financial
health of the business. The financial strategy should detail the collections plan. This may include
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dedicating in-house staff to following up with overdue customers or turning them over to an
outside agency. It will also specify late fees and if deposits are due before products and services
are delivered for new customers.
Investments
Although a specific investment strategy may not be able to be detailed in a written plan, general
guidance should be given to management. This includes a percentage of money invested in highrisk portfolios vs. lower-risk portfolios. The investment section of the plan will also include
guidelines of when approval is needed to make changes to current investments or to liquidate
investments to cover business necessities.
Considerations
The financial strategy of a business plan should be a general guide. While some specifics, such
as approval authorities can be outlined, it will be difficult to account for every possible financial
scenario that may arise in the business. However, the financial strategy should be enough of a
guideline to direct the basic staff of the business in conducting the financial aspects of the
business from paying for purchases to making payroll.

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Strategic Management in Banking

Developing a strategic mindset in the fast changing environment of banking. Banks and
regulators alike have woken up to the growing needs of emerging India. Over the past couple of
years, the Indian banking sector has displayed a high level of resilience in the face of high
domestic inflation, rupee depreciation and fiscal uncertainty in the US and Europe. This has
necessitated the banks in India to concentrate much more on operating efficiency, outsourcing
and cost optimization now than ever before. With deregulation of savings bank rate and bleak
global economy, the banks are focusing on alternative sources of revenue, like fee income, trade
and vendor financing, geographic expansion et al to maximize their revenues. The Banking
sector in India has adopted and embraced technology to keep pace with the international
development in the banking industry and offer quality products to its clients. Technology has
enabled banks to conceive and deliver products that are more in line with the requirements of its
clients on the one hand and also more cost efficient on the other. We have captured few emerging
trends in the Banking space that are gaining traction.
The competitive environment in the banking sector is likely to result in individual players
working out differentiated strategies based on their strengths and market niches. For example,
some players might emerge as specialists in mortgage products, credit cards etc. whereas some
could choose to concentrate on particular segments of business system, while outsourcing all
other functions. Some other banks may concentrate on SME segments or high net worth
individuals by providing specially tailored services beyond traditional banking offerings to
satisfy the needs of customers they understand better than a more generalist competitor. To be
strengthened to ensure transfer of funds on real time basis eliminating risks associated with
transactions and settlement process. Banks will have to adopt global standards in capital
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adequacy, income recognition and provisioning norms. Risk management setup in Banks will
need to be strengthened. Benchmark standards could be evolved. Regulatory set-up will have to
be strengthened, in line with the requirements of a market-led integrated financial system will
have to adopt best global practices, systems and procedures. Banks may have to evaluate on an
ongoing basis, internally, the need to effect structural changes in the organization. This will
include capital restructuring through mergers / acquisitions and other measures in the best
business interests.
IBA and NABARD may have to play a suitable role in this regard. The results of the study
highlights that the banking sector in India is still vulnerable to crises. Even though there were
remarkable changes in banking sector intended to improve the efficiency of the sector, the banks
are still vulnerable to the financial crisis. The growths of NPA, growth rate before and after
financial crisis are the indicators of its vulnerability. Reforms should be further strengthened to
improve the financial stability of banking sector. The vulnerability of banking sector is not
desirable for the growth of economy, hence require precautionary measures. The lessons from
banking sector which are not affected by the financial crisis should be incorporated into the
banking sector. More researches are desirable which investigates the methods to reduce the
vulnerability in the banking sector. Collectively, this paper provides some indicators which can
show the effect of financial crisis in banking sector. NPA is an important factor that still prevails
as an alarming signal for banking growth and survival. There are other various other indicators
like credit-deposit ratio and other by which the performance of the banking sector can be
analyzed in the era of global crisis.The high level of competition in the market, increased
awareness and quality consciousness of the people, changing social values, increasing emphasis
on good corporate governance, etc. have influenced the changes in the environment in a
significant way.The 21st century will bring about all-embracing convergence of computing,
communications, information and knowledge to radically change the business of banking. The
growth of high speed networks, coupled with the falling cost of computing power, is making
possible applications undreamed of in the past. Voice, data, images, and video may now be
transferred around the world in microseconds. Not only has technology transformed the internal
accounting and management systems of banks, it has also fundamentally changed the delivery
systems they use to interact with their customers. However, the quest for newer and better
technologies continues as worldwide, banks look for ways to meet the challenges and
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opportunities of a rapidly-changing environment. They recognize that without the right

technology, they cannot hope to remain globally competitive. The present study investigates
Sustainable Banking Strategies adopted by Indian banks by reviewing the last decade
performance of scheduled commercial banks in India. The development of banking sector and its
stability is essential for the overall development of the economy. The stability of banking sector
is determined on the basis of its performance and quality of assets. This study examines the
various issues of the NPAs and asset quality aspects of Indian scheduled commercial banks of
public and private sector. The Indian banking sector underwent structural changes during post
liberalization era with the implementation of prudential norms for income recognition,
provisioning and asset classification. The banking sector is going to implement Basel III
according in the near future. The study has been conducted by using data available for the period
2000-2011. A notable result is the financial stability of public and private sector banks showed a
tremendous improvement by way of minimizing the level of NPAs i.e. sub-standard, doubtful
assets, loss assets. In the process of Globalization the role of banks plays an important role to
protect the Public money in one hand and to improve the quality standards in terms of
management of funds, minimization of non-performing assets, asset liability management,
spreads on the other. The introduction of new economic policy, prudential norms by Reserve
Bank of India since 1991 in Public and Private Sector Banks facilitated a progressive
improvement in implementing best prudential practices.. In order to bring the Indian banking and
finance system will be globally Competitive. For this the market players will have to be
financially strong and operationally efficient. Capital would be a key factor in building a
successful institution. The banking and finance system will improve competitiveness through a
process of minimization of non-performing assets and efficient and effective funds management
Five Successful Bank Business Strategies
Banks make money based on the total deposits maintained and loans issued. Consumers have
many banks and credit unions to choose from, all competing for their checking, savings and
lending needs. In highly competitive markets, banks must utilize strategies for acquiring and
retaining assets from new and existing customers. Banks have been through big changes. There
is opportunity, but there is also increasing competition. To be the preferred bank means changing
good enough into a unique value proposition. And that means changing the way people have
always done things.
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Improve Income
There is a lot of opportunity to improve income. Each opportunity requires adaptation for the
bank that wants to pursue it. The future will be ruled mainly by big banks that can scale up their
value proposition (and a few niche banks, some owned by bigger banks).

Grow by acquisition
Some banks are buying up troubled or smaller banks or assets at home or abroad. Their challenge
is to effectively integrate their acquisition and ensuring that the promised value is captured. A
heavy-handed approach from the acquiring company without understanding the acquired banks
market, customers, or culture can destroy value and lose business.
Grow by expansion
Banks which are able to fund expansion of their operations into new markets need an effective
expansion strategy to capture value and recover investments.
Grow by partnership
Innovating services and creating something really new for customers can be achieved through
innovative partnerships.
Community Marketing
Banks range in size and capabilities. Small banks may only have one or two branch offices
whereas large commercial banks may have thousands of branches across the nation. Regardless
of the size of the bank, each branch needs to tailor local marketing strategies to serve the
immediate community. Consumers bank in a place where they feel safe and comfortable. This
means tellers and account representatives who speak English as well as any prominent language
in the community. By having branch managers look at the local community needs, the bank can
attract a larger percentage of the target market.

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Product Bundling
A successful strategy employed by all banks is product bundling, such as offering a free checking
account for those who open a savings account. Because this has become common practice,
successful strategies implement creative bundling solutions. An automatic home line of credit
with a mortgage refinance might be a solution when interest rates are low or the community has
a large percentage of consumers looking to consolidate debt.
Pre-Approved Products
Consumers are more likely to say yes to something when they already know they are approved
for it. Banks can review existing accounts to determine positive banking and credit trends in
customers. Those identified with positive trends and credit history are sent "pre-approval" letters
for credit cards, lines of credit or mortgages.
Grow organically
Banks need to grow back their customer bases and deepen their relations and share of wallet.
They must reverse the attrition of their existing customers, and try to generate new business by
selling

more

products

to

existing

customers

and

attracting

new

customers.

This requires an innovative approach in order to be the preferred bank for target customers.
Banks are re-examining their portfolios and customer segments. They are identifying the
customer segments they want to serve and where they think they can be competitive.
More than ever, they will have to understand each segment and build a pragmatic and convenient
customer value proposition relevant to that segment. More than ever, banks will have to focus on
the long term value of a customer, not just immediate transactional value.
Some opportunities for creating value with your customer base:
Customer

Give customers reasons to trust you. Not just once, but repeated over time
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Make customers happy, make their lives easier (not more complicated)

Segment customers and develop value propositions for target segments, based on needs
and behaviors

Measure and improve customer loyalty, across product lines

Process

Rethink processes from a customer experience perspective and create a superior customer
experience

Optimize processes to present a seamless face to the customer across all products and
channels
Channel

Rethink branch operating models and branch network footprint

Incorporate

Use technology to provide multi-channel, more convenient access to products and

all

channels

into

an

integrated

customer

experience.

services
Product

Create more transparent products (for assets, liabilities, off-balance products)

Offer the right products to the right customer segment based on their risk profile

Bundle products and services relevant to a target segment to reward customers for
keeping more products with you

Build a strategic pricing framework that drives relation deepening and customer loyalty

Train front staff to be able to describe products simply and clearly, rightly target them and
take new clients properly on board

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Service

Improve service operation excellence. Train and incentivize staff to delight your target
customers

Develop personalized relationships with your most valuable customers. Redirect front
staff time to relationship-building with most valuable customer segments; automate standard
transactions through remote channels to gain efficiency

Align the service model with the value that customer segments bring

Innovate your sales systems; improve cross-selling and retention rates

Improve Efficiency
The future will also be ruled by banks that can simplify their product lines and processes. Many
banks have high cost structures. They can improve their bottom line, decrease costs by
improving efficiency, while increasing service levels and the quality of the customer experience.

Focus on a clear customer value proposition. Stop trying to do everything at once

Align processes, systems, structure and key projects to the overall strategy

Streamline systems and processes across functions and product lines. Introduce end-toend process simplification for key processes.

Use technology to measure and improve operational efficiency and productivity

Improve efficiency and effectiveness of people by engaging them and reducing attrition
of your best talent
Optimize Allocation of Capital

Adapt to new regulations - capital, risk, liquidity

Deleverage balance sheets where needed

Obtain more reliance on fee income and balance loans to deposits ratios

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Manage operational risks: trading, reputation, product, workforce, and cyber-security.

The challenge is to manage these risks with minimal constraint to customer convenience and
minimum impact on capital

Allocate capital across business lines, investing in the best customers and the business
lines important to them

Teller Referrals
Bank tellers interact with the majority of the bank clientele. Tellers perform the day-to-day
transactions, such as cashing checks, making deposits or transferring money. Successful banks
consistently train tellers to look for opportunities to cross-sell bank products and refer customers
to the right person. A teller may see a regular customer cash a dividend check and refer the
person to the investment specialist. The teller may see a high savings balance and suggest a
higher -earning time certificate. Smart banks reward top referring tellers to entice them to take
the time to suggest a new product or service.
Premier Services
Premier services are designed to attract high net worth bank clientele. High net worth clients
often have different needs as well as expectations. By offering a select set of private bankers to
personally handle all transactions and account reviews, client trust increases. Service is often
better with private bankers able to focus on finding the best solutions to fit complete financial
scenarios.

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Kotak intro
About Kotak Mahindra Bank Established in 1985, the Kotak Mahindra group has been one of
India's leading financial services conglomerate. In February 2003, Kotak Mahindra Finance Ltd,
the group's flagship company was given the license to carry on banking business by the Reserve
Bank of India (RBI). This approval creates banking history since Kotak Mahindra Finance Ltd. is
the first non-banking finance company in India to convert itself in to a bank as Kotak Mahindra
Bank Ltd.
Kotak Mahindra Bank offers complete retail financial solutions for varied customer
requirements. The Savings Account goes beyond the traditional role of savings and provides a
range of services through a comprehensive suite of investment services and other transactional
conveniences like Online Shopping, Bill Payments, ASBA, (Automatic TD sweep-in and Sweepout) etc. The Bank also offers an Investment Account where Mutual Fund investments are
recorded and can be viewed in a consolidated fashion across fund houses & schemes. One can
purchase, redeem, switch and even make systematic investments in Mutual Fund Schemes of
over 20 Indian Mutual Fund houses. All this can be availed through Internet or phone banking
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services. The Bank also offers loan products such as Personal Loans, Commercial Vehicle Loans,
etc.
Keeping in mind the diverse needs of the Business Community, Kotak Mahindra Bank offers
comprehensive business solutions that include Current Account, Trade Services, Cash
Management Services and Credit facilities. Kotak Mahindra Bank has over 411 full-fledged
retail branches and over 918 ATMs spread across 241 locations in the country. The Bank has the
products, the experience, the infrastructure and most importantly the commitment to deliver
pragmatic, end-to-end solutions that really work.
Kotak Mahindra Bank is the fourth largest Indian private sector bank by market capitalization,
headquartered in Mumbai, Maharashtra. The banks registered office (headquarters) is located
at Mumbai, India.
In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was given the
licence to carry on banking business by the Reserve Bank of India (RBI). Kotak Mahindra
Finance Ltd. is the first company in the Indian banking history to convert to a bank.
Merger Strategy Used by Kotak Mahindra Bank
Introduction
In November 2014, Kotak Mahindra Bank Limited (Kotak) announced its acquisition of ING
Vysya Bank Limited (ING Vysya), a quasi-foreign bank owned by Dutch multinational, the ING
Group , in a full-share deal worth of US$2.4 billion. The deal, the biggest in the Indian banking
sector, created the fourth largest private bank in India with a balance sheet size of Rs. 2 trillion
and market capitalization of over Rs. 1 trillion. According to industry experts, this deal helped
Kotak to expand its presence in India and to compete with other topnotch private sector players
in the Indian banking industry
According to experts, the Indian banking sector needed such mergers not only to create worldsized banks to compete with foreign banks but also to create banks with a sufficient capital base
to fund various large infrastructure projects crucial to maintain the growth of India economy.

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However, industry experts had doubts on the synergies of the merger. They quoted a study by
KPMG and Wharton which found 83% of Merger and Acquisitions (M&A) failed to produce any
benefits and over half of M&A ended up reducing shareholder value instead of increasing it.
Some experts were worried about the various challenges the merger deal threw up, such as the
cultural differences between the two banks and the reaction of the employees union among
others. However, other experts were positive about the deal.
Since ancient times, an indigenous banking industry had prevailed in India with some
communities being traditionally involved. These communities mostly ran huge businesses apart
from the banking business. In fact, the banking business was relatively smaller than their other
businesses. They mainly dealt in money lending, did not accept deposits from customers, and
discouraged savings.
The western type of banks came into the picture in the late 18th century in India when Bank of
Hindustan was established in 1770 in Calcutta (now Kolkata) in Western India. Later, General
Bank of India was established in 1786 in Calcutta. Calcutta became the center of banking
activities mainly due to the trading activities of British Empire. In the 19th century, the major
development in the Indian banking industry was the establishment of three presidency banks by
the British East India Company. However, in 1921, these three presidency banks were
amalgamated to create the Imperial Bank of India.

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M&A Activity In Indian Banking Sector

The Indian banking sector did not witness too many M&A activities when compared to western
and other countries. After the first stage of nationalization in 1969, only 34 mergers took place in
the Indian banking sector. In 26 of these deals, PSBs acquired private sector banks that were on
the brink of failure, mostly on a directive from the RBI. The remaining 8 deals happened
between private sector banks.
The merger prior to the Kotak and ING Vysya merger in the private sector banking space took
place in 2010 when Bank of Rajasthan merged with ICICI Bank in a US$398 million deal. There
were many reasons for the low number of M&As in India. These included restrictive regulations,
a major part of the banking industry being owned by the Indian government, and the rigid
resistance by strong employees unions.

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About Kotak Mahindra Bank Limited (Kotak)

Kotak started as a Non Banking Financial Company (NBFC) Kotak Mahindra Capital
Management Finance Limited (KMCMFL) in 1985 in India. KMCMFL was renamed Kotak
Mahindra Finance Limited (KMFL) in 1985 and it received its banking license in February 2003
to become the first NBFC to be converted into a full-fledged private bank in India. It was
renamed as Kotak Mahindra Bank Limited (Kotak). .........
About ING Vysya Bank Limited(ING Vysya)
ING Vysya was incorporated as Vysya Bank Limited (Vysya Bank) in 1930 in Bangalore,
Karnataka, in Southern India. In 2002, ING Vysya came into existence when the ING Group
acquired a major stake in Vysya Bank. This was the first acquisition of an Indian bank by any
foreign bank. ING Vysya offered various financial services under four business segments
Treasury, Corporate / Wholesale Banking, Retail Banking, and Other Banking Operations. At the
end of FY14, ING Vysya had generated revenue of Rs. 60.72 billion with a net profit of Rs. 6.58
billion ......
The Merger Deal
On November 20, 2014, Kotak announced the merger with ING Vysya in an all-stock deal worth
of Rs. 148.51 billion or US$2.4 billion. On regulatory approval, all of ING Vysyas branches and
businesses would merge with Kotak. ING Vysyas shareholders would get 0.725 share of Kotak
stock for every one stock of ING Vysya they held i.e., 725 shares of Kotak for every 1,000 shares
of ING Vysya. This exchange ratio indicated that the implied price of each stock of ING Vysya
was Rs. 790 which was based on the average stock price of Kotak and ING Vysya for one month
from October 20, 2014, to November 19, 2014 which came to Rs. 1089.50 and Rs. 682
respectively..........

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Synergies Out Of The Merger

The merger increased the geographical presence and further deepened Kotaks network, thanks to
the complementary network of ING Vysya. The merger increased Kotaks number of branches
and its ATMs network by 47% and 35% to 1,214 and 1,794 respectively. Before the merger, 80%
of the Kotaks branches were in the western and northern parts of the country and only 15% were
in the southern part of India. On the other hand, ING Vysya had a greater presence in the
southern part of the country with 64% of its branches located there and only 32% its branches in
the western and northern parts of the country. After the merger, Kotak had a balanced presence in
different parts of the country.
For the two banks, the advances and liabilities profile, as well as the urban/metro and rural
branch composition, are also somewhat similar, analysts say. The merger will also enable loanbook diversification and increase Kotak Mahindra Bank's presence in the small and medium
enterprise (SME) segment, which currently accounts for only eight per cent of its loans. The
SME and business banking segments account for 38 per cent of ING Vysya Bank's loan book.
The merger will also boost Kotak' Mahindra Bank's fee income, as ING Vysya Bank offers
multiple trade finance and foreign exchange products.

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Challenges Of This Deal

The major challenge was related to human resource management. The salary structure of both
banks was also quite different. Around one-third employees of the 10,591 employees of ING
Vysya were unionized and their pay structure came under the Indian Banks Association . The
employees of ING Vysya were worried whether their pay structure would continue or not. Some
of the employees of ING Vysya had other concerns too. Employees in positions like regional
manager, sales head, zonal manager, etc., were apprehensive that duplication of positions could
lead to transfers or even to their losing their jobs..........
Looking Forward
According to experts, completing the deal under the nose of the employees union was the big
challenge for Kotak as the employees had already threatened to go on strike on the issue. In
2009, a merger deal between Federal Bank and Catholic Syrian Bank Ltd. did not go through due
to the employees union. The troubles for Kotak were compounded when the Securities and
Exchange Board of India (SEBI) started an investigation into unusual trading in the shares of
Kotak and ING Vysya before the merger was announced in November 2014.

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Strategic Rationale and benefits

Kotak, with 641 branches and relatively deeper presence in the West and North, has a
differentiated proposition for various customer segments including HNIs, deep corporate
relationships including emerging corporates, a wide product portfolio, including agricultural
finance and consumer loans, and a robust capital position. ING Vysya has a strong customer
franchise for over 8 decades, with a national branch network of 573 branches and deep presence
in South India, particularly in Andhra Pradesh, Telengana and Karnataka. ING Vysya has a large
customer base across all segments. It is particularly noted for a best-in-class SME Business, as
also for serving large international corporates in India by access to the international relationships
of ING Group. The combined Kotak will have 1,214 branches, with a wide-spread pan-India
network, getting both breadth and depth given the strong geographic complementarity between
Kotak and ING Vysya. Substantial efficiencies will arise out of the proposed merger, which is
likely to result in significant benefits for all stakeholders, be it shareholders, employees or
customers, and ultimately the banking industry:
Customers and employees will benefit from the combined Kotak having a wider geographical
spread, expertise across customer segments, such as SME, HNI, Corporates, and on products
such as private banking, asset management, insurance, investment banking, NRI offerings etc.
Kotaks strong capital position potentially avoids capital raising and attendant dilution in the
near to medium term for ING Vysya shareholders.
Additionally, with ING Vysya nearing the cap for foreign shareholding, the merger would yield
more liquidity with significant foreign headroom in Kotak even after merger, with foreign
shareholding at ~47%.
Employees
Kotak has been rated among the best employers in the country and is renowned for its employee
orientation and retention of talent. ING Vysya has a diverse set of employees, who have expertise
in dealing with different customer segments. The combined entity will generate ample career
opportunities for staff as well as a wider array of products to serve their customers, aided by
management development opportunities across different businesses of Kotak Group. Both
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organizations have strong cultures and employee best practices and the combined entity will
work towards imbibing these and building a world-class organization. ING Group ING Group,
which owns ~43% in ING Vysya, has indicated that it supports the proposed transaction. ING
Group will become the largest non-promoter shareholder in combined Kotak. ING Group and
Kotak intend to explore areas of cooperation in cross border business, on the basis of a
Framework for Future Cooperation that has been entered into, subject to mutual agreement on
specific terms and all laws and regulations. In addition to the experts who undertook valuation
and issued fairness opinions, Ernst & Young LLP undertook due diligence review of ING Vysya
for Kotak, and Amarchand & Mangaldas were legal advisors to Kotak. PricewaterhouseCoopers
Private Limited carried out due diligence for ING Vysya and AZB & Partners were ING Vysyas
legal advisors.
Valuations
The valuations and share-swap ratio are reasonable, analysts say. The share-swap ratio of 725
Kotak Mahindra Bank shares for every 1,000 shares of ING Vysya Bank entails 15 per cent
dilution for Kotak, lower than Street expectations of about 20 per cent dilution.
The deal values ING Vysya Bank at Rs 790 a share, or about twice its FY15 estimated adjusted
book value, lower than expectations of 2.2 times. The Kotak Mahindra Bank trading at four
times the FY15 estimated book, ING Vysya Bank's acquisition, at 2.2 times, will be highly EPS
(earnings per share)- and book-accretive; at these valuations, the deal will be seven-eight per
cent EPS-accretive and more than 10 per cent book-accretive.
The combined entity will still have a strong capital adequacy ratio of 16.5 per cent (against
Kotak Mahindra Bank's 17.6 per cent currently), its return ratios are likely to see some
pressure in the short to medium term. This is because ING Vysya Bank's return on assets
(RoA) and return on equity (RoE) ratios are much lower than those of Kotak Mahindra Bank
- against Kotak Mahindra Bank's RoA and RoE of 2.2 per cent and 14.3 per cent,
respectively, ING Vysya Bank has RoA of 1.1 per cent and RoE of 8.9 per cent. The
combined entity will have RoA of 1.8 per cent and RoE of 12.8 per cent, according to Kotak
Mahindra Bank.

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