Kotak Mahindra looks to take over rival IndusInd Bank

Kotak Mahindra Bank Ltd, backed by Asia’s richest banker, is exploring a takeover of smaller Indian rival IndusInd Bank Ltd, people with knowledge of the matter said, a move that would create the nation’s eighth-largest financial firm by assets.

Uday Kotak, founder and chief executive officer of Kotak Mahindra, is looking at the possibility of an all-stock acquisition, one of the people said, asking not to be identified as the discussions are private. Uday Kotak and the Hinduja family have held initial talks over the proposal in which the founders of IndusInd Bank could retain a stake in the lender after a deal, another person said.

A deal would cement Kotak Mahindra’s position as one of India’s leading private banks, boosting its assets by about 83%. It would also throw a lifeline to IndusInd, which has seen its market value drop 60% to $6 billion this year after being hit by concerns over worsening asset quality and an erosion of low-cost deposits. Kotak in 2014 acquired the local unit of ING Groep NV for 150 billion rupees ($2 billion) in the largest takeover of a lender in India.

Deliberations are at an early stage and talks could fall through, the people said.

Kotak Mahindra’s spokesman declined to comment. IndusInd “completely denies the said rumour and considers it malicious, untrue and baseless,” the bank’s external spokesman said in an email, adding the founders “reiterate their full support to IndusInd Bank, now and always.”

The UK-based Hinduja family began discussions for selling control of the Mumbai-based lender following a dispute between the four brothers over the future of the family’s $11.2 billion fortune, one of the people said.

India’s central bank earlier this year pushed back on the Hinduja brothers’ plan to raise stake in IndusInd, people with knowledge of the matter said in June.

Shares of Kotak Mahindra have fallen about 18% this year. Its 2.7 trillion rupee market capitalization makes it India’s third-largest lender by value.

IndusInd’s shares have fallen 64% in the past year as investors fretted over the founders borrowing money against its shares, worsening asset quality, and erosion of low-cost deposits. The brothers have since repaid the loan backed by shares of the bank.