Merger of ING Vysya Bank with Kotak Mahindra Bank

Presented By:Vansh DhallRohit BabutaKumar KaushikRishi MalhotraKamakshi Kapoor

Company Profile: Kotak Mahindra Bank Ltd.

Established in 1985, the Kotak Mahindra Group is one of India’s leading financial services conglomerates. In February 2003, Kotak Mahindra Finance Ltd. (KMFL), the Group’s flagship company, received a banking license from the Reserve Bank of India (RBI). With this, KMFL became the first non-banking finance company in India to become a bank – Kotak Mahindra Bank Limited.The consolidated balance sheet of Kotak Mahindra Group is over Rs. 1.34 lakh crore and the consolidated net worth of the Group stands at Rs. 20,554 crore (approx US$ 3.3 billion) as on September 30, 2014. The Group offers a wide range of financial services that encompass every sphere of life. From commercial banking, to stock broking, mutual funds, life insurance and investment banking, the Group caters to the diverse financial needs of individuals and the corporate sector. The Group has a wide distribution network through branches and franchisees across India, and international offices in London, New York, Dubai, Abu Dhabi, Mauritius and Singapore.

Company Profile: ING Vysya Bank Ltd.

ING Vysya Bank Ltd is a premier private sector bank with retail, private and wholesale banking platforms that serve over two million customers. With over 80 years of history in India and leveraging ING’s global financial expertise, the bank offers a broad range of innovative and 5 established products and services, across its 573 branches. The Bank, which has close to 10,000 employees, is also listed in Bombay Stock Exchange Limited and National Stock Exchange of India Limited. ING Vysya Bank was ranked among top 5 Most Trusted Brands among private sector banks in India in the Economic Times Brand Equity – Nielsen survey 2011. ING is a global financial institution of Dutch origin offering banking services through its operating company ING Bank and holds significant stakes in listed insurers NN Group NV and Voya Financial, Inc. ING Bank’s 53,000 employees offer retail and commercial banking services to customers in over 40 countries.

Some Important Merger Terms

The Boards of Kotak and ING Vysya respectively considered the results of a due diligence review covering areas such as advances, investments, deposits, properties & branches, liabilities, material contracts etc. Accordingly ING Vysya shareholders will receive 725 shares in Kotak for 1,000 shares of ING Vysya. The share exchange ratio is considered fair and reasonable given the underlying value of ING Vysya, as also giving shareholders the ability to benefit from the potential that can be realised upon merging into Kotak. This exchange ratio indicates an implied price of Rs.790 for each ING Vysya share based on the average closing price of Kotak shares during one month to November 19, 2014, which is a 16% premium to a like measure of ING Vysya market price. The proposed merger would result in issuance of approximately 15.2% of the equity share capital of the merged Kotak. One of ING Vysya’s directors will be joining the Board of Directors of Kotak.

PUBLICINGGroe

p

INGGroe

p

OthersKotakPromot

er

KotakPromot

er

Public Public

(merged)

Kotak KotakShares Shares

Kotak

Kotak Subs Broking & IB Auto finance Asset Mgmt Insurance

ING Vysya

Merger

Kotak

Kotak Subs Broking & IB Auto finance Asset Mgmt Insurance

Presently Upon Merger Effectiveness

The Board of Directors of ING Vysya and Kotak approved the merger of ING Vysya withKotak, subject to all approvals

The Transaction

► Share Exchange Ratio: 0.725 : 1► 725 shares of Kotak for every 1,000 share of ING Vysya

Swap

Upon obtaining all approvals, at effective date:

ING Vysya including its business and branches merges into KotakKotak issues shares to ING Vysya shareholders

All shareholders (that of Kotak and ING Vysya) participate thereafter in the (merged) Kotak business

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►

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EffectiveDate

The Transaction

MERGER APPROVED

Mumbai, November 20, 2014: The Board of Directors of Kotak Mahindra Bank Ltd (“Kotak”) and the Board of Directors of ING Vysya Bank Ltd (“ING Vysya”) at their respective meetings held today have approved an all-stock amalgamation of ING Vysya with Kotak.The amalgamation is subject to the approval of the shareholders of Kotak and ING Vysya respectively, Reserve Bank of India under the Banking Regulation Act, the Competition Commission of India and such other regulatory approvals as may be required.Upon obtaining all approvals, when the merger becomes effective, ING Vysya will merge with Kotak. Shareholders of ING Vysya will receive shares of Kotak in exchange of shares in ING Vysya at the approved share exchange (“swap”) ratio. All shareholders of Kotak and ING Vysya will participate thereafter in the (merged) Kotak business. All ING Vysya branches and employees will become Kotak branches and employees. ING Vysya’s CEO designate, Mr Uday Sareen, will be inducted into the top management of Kotak reporting directly to Mr Uday Kotak, Executive Vice Chairman and Managing Director of Kotak.

(Merged)

Wider Coverage and Balanced Footprint

BranchesING

Vysya1 KotakKotak

West 12% 46% 30%North 20% 34% 27%

South 64% 15% 38%East 4% 5% 5%Total 573 641 1,214ATMs 635 1,159 1,794

Branch Density Complementary in KeyCities

BranchesING

Vysya1 KotakKotak

(Merged)Mumbai2 36 88 124

Delhi NCR 34 90 124Bangalore 40 20 60Hyderabad 20 8 28Ahmedabad 5 26 31Chennai 13 14 27Pune 4 21 25Kolkata 10 12 22

Total 162 279 441

Complementary Network – Breadth and Depth Together

Strategic Rationale and Benefits

Less need for branchexpansion

Save on productintroduction

costs

Origination costsavings – higher

throughput of products through

network

Save on overlap ofinfrastructure

Time

Revenue Synergies and Cost efficiency led Merger

Synergies and Cost Efficiencies

BENEFITS OF KOTAK MAHINDRA BANK

"The amalgamation would give Kotak access to ING Vysya's 573 branches (90% of Kotak's current branch network). An important point to note is that Kotak doesn't have branch presence in 65 per cent of ING Vysya's current branch locations."The deal, if concluded as a full share swap deal, will help reduce the promoter stake at Kotak Bank from 40.07 per cent to 33 per cent. Note, the RBI has mandated that Kotak Bank reduce its promoter holding to 30% by December 2016 and 20% by March 2018," Morgan Stanley said in a report."The acquisition will increase Kotak's number of branches from 600 in FY14 to 1,200 branches and give access to ING's SME platform. ING Vysya's key strength is in SME," Nomura said in a report."With Kotak trading at 4x FY15F book, ING Vysya's acquisition at 2.2x will be highly EPS and book-accretive - at these valuations, the deal will be 7-8 per cent EPS-accretive and over 10 per cent book-accretive."CASA ratios for Kotak and ING Vysya at 32-33% are very similar, but since SME banking is CASA-heavy, liability franchise in the long run would benefit," it said.

► Significant room for growth without dilution CAR (ING Vysya)1: 14.99%; CAR (Kotak)1: 17.59%; CAR (Combined)1: 16.51%

► Significant foreign shareholding headroom when merged

Provides significant trading flexibility to ING Vysya shareholders

Kotak is an Index stock

► ING Groep will be the largest non-promoter shareholder

6.8%6.5%

34.0%FIIs,

omestic,

1 CAR is based on standalone financials as of September 30, 2014 and includes H1FY15 profit; 2 Considering the swap ratio of 0.725shares of Kotak for every share of ING Vysya

Shareholding Pattern (September 30, 2014)ING Vysya Kotak Kotak (Merged)

Other FDI, Other FDI,0.1% 8.0%

FIIs,27.8%

ING Groep, FIIs, Promoters,

42.7% 34.6%

Domestic,29.4%

Domestic,17.3%

Foreign Holding: 70.6% Foreign Holding: 42.6%

ING Groep, Other FDI,

Promoter

33.6%

19.1%

Foreign Holding: 46.9%

Shareholders – Significant Value Drivers in Place

Experience, expertise and diversity of employees is a significant asset for INGVysya

ING Vysya employees will have growth opportunities across Kotak group

Kotak employees would be part of a larger and deeper pan India franchise

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Employees►

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ING Vysya’s diverse customer segments with more than 2 million customers,will now have access to Kotak’s wide product suite across financial services

“Digital” a key strategic driver for both banks will be a priority for the merged Kotak entity – ING Groep, which has a successful global experience in this area, can play a vital role to assist over time

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Customers ►

Significant Growth Opportunities for Employees andBenefits for Customers

► Global network► Global corporate relationship

► Payment / CMS solutions

► Balance sheet size

Trade FinanceTreasury

Serving each other’s corporate relationships

Direct banking know-how to drive digital focus

Remittances / NRI Services

Fee basedproducts

Cross border credit linesMicrofinance

DCM M&A

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►►►

►

► ►► Domestic high end corporate

relationships

► NRI customers

► I-Banking

► DCM

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►

Kotak (Merged)

Potential Areas of CooperationING Groep

ING Groep & Kotak have entered into a Framework for Future Cooperation

Business Cooperation – ING Groep and Kotak

As on September 30, 2014; Kotak (Merged) numbers are simple additive to that of ING Vysya and Kotak1 Relates to customer accounts and excludes Kotak Life group customers

Particulars ING Vysya Kotak Kotak (Merged)

Branches (nos) 573 641 1,214

ATMs (nos) 635 1,159 1,794

Employees (nos) 10,591 29,220 39,811

Customers (millions) ~ 2 ~ 81 ~ 10

Creating a larger Financial Services Group….

► Primary driver of merger -- Revenue synergies, complementarities and growth potential;Cost effectiveness over time

► Enhanced product suite to serve their customers

► Wider distribution to serve customers

… with a Long Term Growth Orientation

KOTAK AND ING DEAL

Shares of Kotak Mahindra Bank and ING Vysya have hit their respective 52-week high as the two announced a decision to merge in a $2.5 billion or Rs 15,000 crore deal. After gaining 7% on Thursday, Kotak Mahindra stocks again jumped another 8% on Friday. ING Vysya stocks jumped 12% and 2% on the two days,

All this action is because Kotak Mahindra Bank announced a deal to acquire the smaller bank. Here are seven key things to know about the acquisition deal.

Brokerages give thumbs up: Most analysts and brokerage firms cheered the deal. This is because they expect the deal to improve Kotak Mahindra’s bank business by expanding its branch network as well as improving its loan portfolio. The deal also happens at a time when the economy is showing signs of improvement. This means, Kotak will be in a better position to take advantage of any rise in demand for loans, analysts said. The deal is likely to increase Kotak’s loan book by nearly two-thirds (75%), brokerages said. 

Contd…

Branch network: The merger is expected to double Kotak’s branch network from 641 to 1,214 having nearly 40,000 employees. ING Vysya current has about 573 branches in the country, most of which are situated in the South. This is good news is because Kotak was predominantly present in North India. This means the two bank’s branches do not overlap. The merger also means the combined entity will have a far wider reach in the country than earlier. Kotak is expected to gain 2 million customers from the merger.SME banking: ING Vysya also brings its SME banking platform to the table. This will help Kotak in the long run. As of September, ING Vysya lent about 70% of its total loans to small and medium enterprises (SME) and large companies. In contrast, Kotak lent only 55%. The merger is thus likely to strengthen Kotak’s corporate lending business. All of this is expected to increase Kotak’s total earnings by one-fifth or 20%, experts suggest.First profitable bank merger since 2008: The banking sector rarely sees a lot of mergers and acquisitions. This is because of strong rules which restrict such movements. Since the 2008 banking crisis, there have been only two deals. However, both the deals involved a profitable bank taking over a smaller loss-making entity. The Kotak Mahindra-ING Vysya deal will be the first since 2008 involving two profit-making banks.

Note: Merged numbers are based on consolidated financials

Rs. CroreKotak (Merged)

FY14ING Vysya

H1FY15Kotak (Consol)

H1FY15Kotak (Merged)

H1FY15NII 7,427 960 3,094 4,054Other Income 6,150 456 3,547 4,004Total Income 13,576 1,416 6,641 8,057PAT 3,123 324 1,416 1,740

Networth 26,147 7,449 20,554 28,003Advances 1,07,521 39,558 81,418 1,20,976Investments 55,512 20,264 42,694 62,958Total Assets 1,82,650 64,582 1,34,401 1,98,983

Note: Merged numbers are based on consoli

Rs. croreKotak Standalone

(Merged) FY14ING Vysya

H1FY15Kotak Standalone

H1FY15Kotak Standalone(Merged) H1FY15

CA 15,749 7,475 9,472 16,947SA 16.838 7,288 11,693 18,981Total Deposits 1,00,289 44,652 68,103 1,12,754

Summary Financials – Kotak (Merged Proforma)

* Based on Standalone financials; Half year numbers are annualised, as applicable

Key Ratios (%)Kotak (Merged) FY14

ING VysyaH1FY15

Kotak (Consol) H1FY15

Kotak (Merged) H1FY15

CASA* 32.49% 33.06% 31.08% 31.86%

NIM 4.53% 3.46% 5.05% 4.55%

Cost / Total Net Income* 51.35% 55.26% 51.87% 52.98%

GNPA 1.68% 1.59% 1.59% 1.59%

NNPA 0.68% 0.42% 0.84% 0.70%

CAR - Tier I* 16.47% 13.22% 16.63% 15.22%

CAR – Total* 17.97% 14.99% 17.59% 16.51%

ROA 1.82% 1.07% 2.21% 1.84%

ROE 13.04% 8.90% 14.26% 12.83%

Book Value / Share (Rs) 288 391 266 308

Summary Ratios – Kotak (Merged Proforma)

Note: merged financials are based on simple addition and does not entail any adjustments

Rs. CroreKotak (Merged) FY14

ING VysyaH1FY15

Kotak (Consol) H1FY15

Kotak (Merged) H1FY15

Net Interest Income 7,427 960 3,094 4,054

Other Income 6,150 456 3,547 4,004

Net Total Income 13,576 1,416 6,641 8,057

Employee Cost 2,757 459 1,140 1,599

Other Operating Expenses 5,626 323 3,308 3,631

Operating Expenditure 8,383 783 4,447 5,230

Operating Profit 5,193 634 2,194 2,828

Provision & contingencies 459 151 86 236

Exceptional Items 61 - - -

PBT 4,673 483 2,109 2,592

Provision for Tax 1,504 160 693 852

PAT 3,169 324 1,416 1,740

Other Adjustments 46 - - -

Consolidated Profit for the year 3,123 324 1,416 1,740

Key P&L Items – Kotak (Merged Proforma)

Key Activities Particulars

Board Decisions, Announcement Date

► November 20, 2014

Governing Regulation ► Section 44A of the Banking Regulation Act, 1949

Regulatory ApprovalsRequired

► Shareholders of ING Vysya and Kotak

► Reserve Bank of India

► Competition Commission of India

► Others as may be required under extant regulations

Effective Date ► Upon receipt of all approvals including from RBI

Merger Process Overview

Limited

Limited

Advisors Kotak ING Vysya

Accounting DiligenceAdvisors Ernst & Young LLP

PricewaterhouseCoopers Private

Legal AdvisorsAmarchand & Mangaldas & Suresh A.

Shroff & Co. AZB & Partners

Valuers S.R.Batliboi & Co., LLP Price Waterhouse & Co LLP

Fairness Opinion Avendus Capital Private Ltd.Edelweiss Financial Services

Advisors

Thank You