Kotak Mahindra Bank to acquire ING Vysya Bank in an all Stock Deal

 

 PTI 20 Nov 2014 6.00 pm

Kotak Mahindra Bank today decided to acquire mid-sized lender ING Vysya Bankin an all-share transaction to strengthen its position ahead of entry of new players. 

The Uday Kotak run bank said the consolidation was founded on leveraging "significant complementaries that exist between the two banks." 

The merger would be done through a share swap in which 725 equity shares of Rs 5 each of Kotak Mahindra will be issued for every 1,000 shares of Rs 10 each held in ING Vysya Bank. 

"Post amalgamation, shareholders of ING Vysya Bank will receive shares of Kotak Mahindra Bank in the aforementioned ratio, resulting in change in shareholding of the Kotak Mahindra Bank," a statement from Kotak Mahindra Bank said. 

The transaction would be subject to approval of shareholders of both the banks as well as statutory approval from RBI and Competition Commission of India, it said. 

Netherlands-based ING holds 42.73 per cent stake in ING Vysya Bank through two investment vehicles routed through Mauritius. 

ING Vysya Bank shares closed 7.15 per cent at Rs 814.20 per on the BSE ahead of the announcement which came after trading hours. 

Uday Kotak        ✔ @udaykotak

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I am excited to announce the merger of Kotak Mahindra Bank & ING Vysya Bank, subject to approvals. We will work to create stakeholder value.

5:48 PM - 20 Nov 2014

Kotak Mahindra Bank too jumped by 7.28 per cent to close at Rs 1,157.05 per unit at the BSE. 

The statement further said: "this revenue synergy led and growth oriented amalgamation, adopting the best practices of the banking, governance and prudence from both banks is expected to result in a superior platform benefiting from efficiencies of size and scope over time for all shareholders, customers and employees."

Chennai realty: Indiabulls buys 10-acre commercial building for Rs 600

In one of the biggest commercial deals in South India, Indiabulls Distribution Services Ltd, a subsidiary of Indiabulls Securities Ltd, has bought a 10 acre commercial complex in Chennai for Rs 600 crore ($97 million).

The India Land Tech Park in Ambattur will be renamed One Indiabulls Park. Indiabulls is looking to fund the transaction through internal accruals and private equity funds.

The commercial complex consists of 3 towers with a total constructed area of 2.4 million sq ft and leasable area of 2 million sq ft, translating into a transaction value of Rs 3,000 per sq ft of leasable area.

India Land and Properties is owned by Americorp Group, a global investment management company headquartered in Madrid, Spain. An ISO 9001 2000 certified company, India Land says it is working with the primary objective of promoting world-class infrastructure projects in India.

Current tenants of the complex include Royal Bank of Scotland, Kone, Britannia Industries, Ajuba, Covenant, Telebuy and Ibox.

]The Indiabulls-India Land deal is the second highest realty deal in Chennai. The highest ever commercial deal in the city to date, is by private equity firm Xander in Shriram Property's IT SEZ for Rs 690 crore. In October, Flipkart signed one of the biggest commercial real estate deal in India when it took 3 millions sq ft space in Embassy Tech Village in Bangalore.

In fact it seems that South India has pipped the north and west when it comes to commercial real estate. From January to September, almost 50 percent of new office space deals were struck in Chennai, Hyderabad and Bangalore,

Chennai recorded a 50 percent quarterly growth in the July-September period, with some of the bigger transactions involving properties like the Prestige Palladium in the heart of the city, the DLF IT SEZ, approximately 5 km from the airport; and along the city's upcoming it corridor in Sholin-Ganallur where a contract research firm scope international signed up 96,000 sqft .

Moreover, rentals have risen by 25 percent Y-o-Y and 15 percent-plus Q-o-Q in IT SEZs in localities like Velachary, Perungudi and Poonamallee Road.

 FBiz :Nov 20, 2014

Appointing a PSU bank chairman

Krishnamurthy Subramanian : Live Mint :THU, NOV 20 2014. 05 25 PM IST


To stem the rot in public sector banks, the government should create a professional process for appointment 

Following the arrest of S.K. Jain, the former chairman of Syndicate Bank, the government has modified the selection process for the appointment of chairmen of public sector banks (PSBs). This process has effectively added more layers of bureaucracy in the form of three screening committees (instead of one earlier). Rather than tinkering with a failed system, and possibly making it worse, the government needs to institute a process that incorporates the best practices for the selection of the leader of a PSB.

Unlike the case of a private sector bank, where the selection process follows an extensive search that is usually handled by an executive search firm, no search process is stipulated in the case of the selection of chairmen of PSBs. A shortlist is generated based on certain demographics of general managers in all PSBs, such as age, number of years of experience as general manager, etc. This shortlist is then screened for potential cases of corruption or vigilance enforcement. The shortlisted candidates are interviewed usually for 15-30 minutes before a decision is made on the eventual candidate. Given the difficulty in judging the candidate in such a short span of time, rumours abound about the outcome being pre-decided based on political affiliations/extraneous reasons.

Several aspects of the current process render it sub-optimal. First, government officers and regulators are unlikely to possess the skills necessary to judge the potential talent necessary for someone to lead a bank with assets of Rs.5 trillion or more. Banking is a very specialized activity, and top management needs to combine strategic foresight with a good commercial knowledge of sectors to lend to, prudent risk management and human resource skills. For highly skilled activities, selection by a peer group generally ensures that those who select have the ability and discernment to assess the required attributes.

For example, if the selection of the Indian cricket team for the forthcoming cricket World Cup is left in the hands of the Board of Control for Cricket in India (BCCI) administrators rather than the selection committee comprising former cricketers, one can only shudder to think about the potential performance of the team. Just like a cricketer representing the national team requires special skills, the chairman of a PSB also needs enormous skills of leadership, persuasion, risk management, people management, etc. Former cricketers who have played the game at the top level comprise the selection committee for the Indian cricket team. Similarly, only someone who has been the chief executive officer of a large bank can understand the skills required for the job. No bureaucrat, politician or regulator can possess the skill to judge whether or not a particular candidate has the necessary ability. The current perception that the selection by such a peer group is unnecessary for top management positions in PSBs fails to recognize the specialized nature of banking and (in the context of government appointments) lends itself more easily to abuse.

Second, the way the selection committee is presently constituted leads to inadequate interaction with the shortlisted candidates. Consider the process of appointment of assistant professors in research-oriented universities. Because research requires application of diverse skills, a prospective candidate spends an entire day meeting and interacting with every research-oriented faculty in the department for 30 to 45 minutes. The one-on-one interaction provides multiple opportunities for each individual faculty to evaluate the candidate. A follow-up discussion where each individual faculty shares his/her assessment of the candidate leads to a rich assessment of the candidate’s attributes. Similarly, interactions with each member of a selection committee, comprising former bankers, would better assess the potential for leading a bank.

The Nayak committee’s recommendations in this context are worth considering. Till the time that the boards of PSBs are professionalized, the committee recommended setting up of a Bank Boards Bureau (BBB), which would advise on top bank management selection. BBB will comprise senior or retired commercial bankers. It should ideally comprise a compact set of three bankers, of whom one would be the chairman. As this would be a full-time position, serving bank officers would need to resign, if chosen. For the process to carry credibility, it is important that the chairman and members be of high standing and should have led banks. Their choice should be made by the government in consultation with the Reserve Bank of India (RBI). As the appointments to the top management of banks will continue to require the concurrence of the appointments committee of the cabinet, it is desirable that BBB’s recommendations be generally accepted by the government. In cases where the BBB’s recommendations are not followed, BBB should be mandated to make a public disclosure of recommendations that were rejected by the government.

To stem the rot in PSBs, the government would be well advised to create this professional process for appointment of top management in the PSBs. Given the precarious position of PSBs and the substantial amount of capital that the government may have to provide in the next five years, such a step has become a sine qua non.

Krishnamurthy Subramanian teaches finance at the Indian School of Business and was a member of the P.J. Nayak Committee on governance of bank boards.

Dear Jaitley, don't be a Chidu; forcing banks to lend now to corporates can backfire

Finance minister Arun Jaitley met the chiefs of public sector banks in Delhi today (Thursday) to discuss the performance of government banks, the problem of rising bad loans and, more importantly, lack of credit flow to corporations critical to kick start projects. At the meeting the minister asked bankers to restart lending to stalled projects.

The meeting happened in the backdrop of a strong caution from the Reserve Bank of India (RBI) on Wednesday about the potential risks of a sharp growth in the retail lending in the recent months, especially to the consumer durables segment.

The apex bank fears that pushing too much credit to the retail customer, beyond his absorptive capacity, could lead to over-indebtedness and resultant stress on the books of banks.

The RBI’s concern is justified if one looks at banks’ rapid credit expansion to retail segments in the last one year.

Let’s take a look at the numbers. Bank loans to the consumer durables segment grew by 48 percent on a year-on-year basis (38 percent a year ago) in the 12-months ending September, whereas the overall non-food credit growth stood at a mere 8.6 percent.

Similarly, credit card outstanding grew by 17.4 percent on year in the 12-months period as compared with a mere 2.1 percent in the corresponding period last year. Vehicle loans grew 18 percent, slightly lower than 23 percent in the previous year. Housing loans grew 15 percent compared with 20 percent.

Why have banks suddenly developed a liking to the retail segment?

In the face of lacklustre demand from corporations, banks have clearly found a saviour in the retail customer, where there is still some demand.

Also, overall credit growth continues to lag behind the deposit growth significantly. This adds to the carry cost of banks, forcing them to deploy the funds somewhere. In fact, the real reason for the deposit rate cuts by banks in the recent past is to discourage fresh deposit flows.

Banks are already over-invested in government securities with average SLR holding somewhere about 28 percent compared with the minimum 22 percent. So avenues to deploy funds are limited.

From a risk perspective as well, salaried individuals have better repayment record compared with companies. Banks’ retail bad loans have been insignificant compared with that from corporate loans. That explains the rise in the loan exposure to individuals to buy cars, two-wheelers and apartments and other consumption-related needs.

But the RBI is clearly worried that pushing too much credit to the retail customer can lead to a breaking point, such as the one happened in the microfinance sector some four years back.

The microfinance movement, which took birth in the mid-90s, came to the rescue of millions of low-income households, who did not figure on banks' radars. Micro-finance companies offered small-ticket loans to these unbanked poor to fulfill their financial needs.

But eventually the dynamics of the microfinance changed when private equity firms sensed a bsuiness opportunity in the sector. Profit-motive outweighed livelihood promotion in the agenda of microlenders. The companies began pushing multiple loans to the same borrower to grow their book. This chain logically collapsed in 2010 when loan recovery practices were questioned by state and central governments.

RBI, logically, doesn’t want to let a retail loan bubble growth in the commercial banking industry.

Why are banks not lending to companies?

As Firstbiz had highlighted before, practically, there is no demand from corporations even after the revival talk. After a long time, one big-ticket loan happened in India when SBI recently agreed to extend a $1 billion loan to fund Adani’s Australia coal project. The decision of SBI to give the loan to a seemingly loss-making segment, from where other banks have largely stayed away, has been questioned.

Credit growth is near-stagnant to industries, especially to medium- and large-sized firms. Loan flow to mid-sized companies shrank 2 percent in the 12-month period until September and those to large firms grew by a mere 4.7 percent compared with 18 percent in the previous year.

Any strong revival in economic activities can happen only when banks loosen their purse strings to companies and real action begins on the ground. Several stalled projects are still not back on track and new projects are yet to happen, according to bankers Firstbiz spoke to.

Seen in this context, the finance minister's subtle push on banks to resume lending to projects assumes significance because he is committing the mistake his predecessor did -- micro-managing the state-run banks. Its best to leave banks do their business.

During the UPA's regime, the finance ministry used to interfere in the functions of the public sector banks, influencing their business decisions on critical aspects such as credit offtake and loan pricing. In their desperate bid to meet the credit growth targets, which were reviewed in periodical meetings, they resorted to careless lending.

The result is for everybody to see. Much of the reasons for the current spike in the bad loans is because of the reckless lending they did.

The link is very clear: when the single-minded focus is expansion of loan book, credit quality suffers and bad loans pile up. At present, Indian banks are sitting on about Rs 2.6 lakh crore of bad loans, of which over 90 percent is on government banks' books.

But Rs 2.6 lakh crore is only one part of the story. Apart from these, there are about Rs 5-6 lakh crores of restructured assets. A significant chunk of the restructured assets are hidden non-performing assets (NPAs).  Bad and restructured loans impact the profitability of banks and significantly add to their capital requirements.

Before prodding the banks to lend to corporates, what the government should do is, find ways to resolve the structural bottlenecks that delay projects and prevent firms from coming up with fresh proposals. A real revival on the ground will result in genuine demand for fresh money.

It is unlikely that any bank will consciously block money to a good project -- one from which return is guaranteed. On the other hand, forcing state-run banks to lend more to any particular segment undermining the risks and influencing their business decisions can boomerang.

By Dinesh Unnikrishnan    FBiz 20 Nov 2014

1 Billion loan to Adani : SBI's $1 billion loan to Adani makes no sense, here's why

The State Bank of India(SBI) has decided to lend up to $1 billion to Adani Mining, the Australian subsidiary of Adani Enterprises for the Carmichael mine in Queensland, Australia. The mine has massive blocks of untapped coal reserves. The company aims to build the project by end of 2017.

"The MOU with SBI is a significant milestone in the development of our Carmichael mine," Adani said in a statement released yesterday

The loan as and when it is extended would be one of the largest given out by an Indian bank for a foreign project. The question is should SBI be giving out a loan of up to $1 billion to a company which already has a huge amount of debt.

Let's take a look at how the numbers look. As on September 30, 2014, the long term debt of the company stood at Rs 55,364.94 crore. The short term debt stood at Rs 17,267.43 crore. Hence, the total debt of the company stood at Rs 72,632.37 crore.

As on March 31, 2014, the total debt of the company stood at Rs 64,979.04 crore. Hence, the total debt of the company has shot up by Rs 7653.33 crore in a matter of six months.

The question we are trying to answer here is how good is the ability of the company to service all the debt that it has managed to accumulate. For that we use results of the last four quarters and calculate the interest coverage ratio. Interest coverage ratio is essentially the earnings before interest, taxes and exceptional items (or what is often termed as operating profit) of a company divided by its interest expense. It tells us whether the company is making enough money to pay the interest on its outstanding debt.

The total operating profit of the company over the last four quarters comes at Rs 8999.92 crore. The interest that the company has paid on its debt in the last four quarters amounts to Rs 5,733.77 crore. This means an interest coverage ratio of around 1.57.

As www.investopedia.com points out “The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable.”

While Adani Enterprises' interest coverage ratio is not lower than 1.5 it is clearly getting there. In fact, things get even more interesting once we start calculating the interest coverage ratio on the basis of quarterly data. The interesting coverage ratio for the period of three months ending March 31, 2014, stood at 2.67. It stood at 1.58, for the period of three months ending June 30, 2014. And for the period of three months ending September 30, 2014, it stood at 1.12.

As we can see, the ability of the company to keep paying the interest that it needs to pay on its debt has come down dramatically during the course of this financial year. As www.investopedia.com points out “An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.” Adani Enterprises is clearly moving towards this situation. Further, in a May 2014 report, Bank of America Merrill Lynch had estimated that the company would have an interest coverage ratio of 1.2 during the course of this financial year.

What all this clearly tells us is that Adani Enterprises is in an over-leveraged situation and is getting to a situation where it will find it difficult to keep paying the interest on its debt. The thing with debt is that it can work both ways. When a company takes on a higher amount of debt it gives itself an opportunity to generate higher earnings vis a vis a situation where it hadn't taken on that debt at all.
If this happens, then these increased earnings are spread among the same number of shareholders. But at the same time the company runs the risk of getting into a situation where the projected earnings simply don't come along and it finds it difficult to keep paying the interest on all the debt that it has taken on.

Adani Enterprises runs the risk of getting precisely into this situation. Further as a Reuters news-report points out “Much bigger coal rivals, like BHP Billiton and Glencore, have also shelved coal developments in Queensland at a time when a third of Australia's coal output is making losses.”

Also, coal prices have fallen over the last few years. As a recent report in The Hindu points out “Globally, coal prices have been on a downtrend in the last three years and are at the lowest levels since 2009. Prices of steam coal, a slightly lower grade that is used in power generation, have halved since 2011 to $62 per tonne now.”

This fall in prices has happened because of the supply not shrinking along with demand. “For instance, demand from China — the largest consumer of coal accounting for half of the total global demand — has been slow. After growing at over 10 per cent annually during 2001-2011, the country’s demand has fallen — imports were down to 150 million tonnes (mt) in 2013, from 182 mt in 2011. And given the pollution-related issues, it is expected that the country may look at cleaner sources more actively, holding down demand. Goldman Sachs estimates that imports will fall to 75 mt by 2018,” The Hindu points out.

Goldman Sachs expects the demand growth to be 15 million tonnes per year during 2013-2018, against 60 million tonnes per year it was at during 2008-2012. The supply of coal isn't likely to come down. In case of Australia the miners have entered into long term “take or pay” contracts which requires them to pay $20 per tonne of transport costs, irrespective of the fact whether or not they ship coal. Hence, Australian miners are likely to continue to ship coal.

What this tells us is that coal is not the best business to be in right now. Despite these reasons SBI has gone ahead and given a loan of up to $1 billion to Adani Enterprises. This is not a logical decision which takes into account the facts as they prevail. The only possible explanation for this decision is the “so called” closeness of Gautam Adani, chairman of Adani Enterprises to Narendra Modi, the prime minister of India.

Vivek Kaul is the author of the Easy Money trilogy. 19 Nov 2014

National database on black money : Soon

New Delhi: The Special Investigation Team (SIT) on black money has decided to create a rich national database where multiple agencies probing tax and financial crimes will pool in vital classified information to be shared for seamless investigation.

The SIT is wanting to bring together the databases of CBDT, Financial Intelligence Unit (FIU), Enforcement Directorate, Customs and Excise and few other departments so that in case of an input being received on any instance of black money generation, it could be quickly taken up for action, sources privy to the development said. "The database will initially be shared by the agencies by way of regular exchange of information over the existing channels. Later, it is planned to be made electronic," they said.

The aim of the SIT is to begin "seamless sharing of information" among all the agencies involved with it and also those outside it, they said. A team of officials has already begun working on this plan and the agencies have been asked to identify common 'red flag' indicators collated by different departments.

The SIT also wants to prepare the database on the lines of the '360-degree' data profiling platform of the Income Tax Department which aids tax sleuths in finding all the relevant information about a suspect on the basis of pointers like PAN card, credit card information and I-T returns.

The database, the sources said, is expected to be developed by a private software vendor. The SIT has been constituted by the Supreme Court and notified by the government with the specific purpose to unearth black money, strengthen mechanisms to check it and investigate all such cases where Indians have stashed illegal funds or assets overseas.

The panel, headed by retired Supreme Court judge MB Shah with justice (retd) Arijit Pasayat as its Vice-Chairman, has heads or officers of 11 central investigative and enforcement agencies in it

PTI 20 Nov 2014

Sackings at Infosys :Overbilling Apple led to more sackings at Infosys, co launches internal probe

More heads will roll at Indian IT bellwether Infosys following the sacking of its BPO unit CFO Abraham Mathews for not complying with the company's code of conduct.

The Economic Times reported today that Infosys will sack six more employees after internal investigations revealed that they had produced inflated invoices and purportedly overbilled Apple for many months.  A whistleblower's complaint had alleged that invoices to client Apple had been inflated.

The sacking of employees underscore the company's zero tolerance towards financial misconduct.

"The sources insisted the amount involved was "financially insignificant", but the company was taking harsh action nevertheless to make an example of the case that has become an unwelcome distraction for new CEO Vishal Sikka as he seeks to recapture the IT bellwether status for Infosys," reported Economic Times.

"The financial irregularities are not material in nature and the company has already made required disclosures. The company has taken disciplinary action on employees. We will not be able to comment on client specific matters or on investigation as they are confidential in nature," Infosys said.

Infosys, in a stock market filing, had also said the unit's chief executive, Gautam Thakkar, had resigned on "moral grounds" and would leave the company on Nov 30.

This departure is in keeping with the company's goal of setting the highest standards of corporate governance and adhering to the letter and spirit of the company's code of conduct, Infosys said.

Infosys has also appointed a committee to oversee the probe panel and make recommendations on the future course of action, reported CNN IBN.

Infosys named Anup Uppadhayay and Deepak Bhalla, both company veterans, as the unit's chief executive and chief financial officer respectively.

FBiz 20 Nov 2014

DSE recognition : Sebi today withdrew the recognition granted to the bourse.

 Finding "serious irregularities" in the functioning of Delhi Stock Exchange, Sebi today withdrew the recognition granted to the bourse.

The capital market watchdog has also observed that activities of DSE were "carried out in a manner contrary to the interest of the investors."

"...hereby withdraw the recognition granted to Delhi Stock Exchange," Sebi Whole Time Member Prashant Saran said in a 19-page order.

The regulator will take all necessary steps consequential to the derecognition.

"I note that serious irregularities have been found in the functioning of DSE at the time when DSE was taking steps for demutualisation," Saran said.

"It is seen that for completing the demutualisation process the erstwhile board of DSE had overlooked the due transfer of shares in the demat accounts and receipt of the funds by the 'appointed date'," he added.

Further, DSE acted in a irregular manner in case of "releasing the funds to the merchant banker, without receipt of the application money, allotment of shares to media company and in turn awarding them media contract etc, without any corresponding utilisation of media space."

Among others, Sebi rules pertaining to demutualisation requires every stock exchange to sell brokers' 51 per cent equity to separate their trading and ownership rights.

Present governing board of DSE admitted that a false certificate of completion of demutualisation process has been submitted by the erstwhile management of the exchange.

"It is seen that the present management, even after getting to know about the irregularities committed by the erstwhile management, has not initiated any action," the Securities and Exchange Board of India (Sebi) said.

"From the same, it can be concluded that DSE had failed to complete the demutualisation process before the 'appointed date," Sebi said

Therefore, the recognition granted to DSE was withdrawn, it added.

PT I Nov 20, 2014

Merger - ING Vysya :Shares of Kotak Bank and ING Vysya Bank surge to record high on merger talks

 

Kotak Mahindra Bank surged as much as 7.6 percent to a record high of Rs 1,159.15 on reports that Kotak is close to acquiring ING Vysya bank.

Kotak Mahindra is heading towards its biggest single-day gain since September 2013

ING Vysya Bank soared as much as 7.4 percent to record high of Rs 813.50.

Brokerage Nomura said the acquisition will be good for Kotak. Both banks have low geographical overlap, similar liability mix, Nomura says, adding it will provide Kotak with an SME banking platform.
Nomura said potential acquisition will also help Kotak comply with RBI's deadline on reducing promoter's stake.

Kotak, however, said no decision has been made in relation to any merger.

On Tuesday, the Economic Times reported that Uday Kotak, Executive Vice Chairman and Managing Director, Kotak Mahindra Bank is in final stages of acquiring ING Vysysa Bank.
With inputs from Reuters 20 Nov 2014