There is a lot of talk in India’s financial sector about the chance of Kotak Mahindra Bank and IDBI Bank merging. A new study from Jefferies shows how the finances of a possible merger could work if it were to be considered in the future. However, no official confirmation or decision has been made.
The due diligence process that Kotak Mahindra Bank did to look over private information like borrower data, exposure, and loan provisions was finished earlier this week. This process helps people understand IDBI Bank’s financial situation before they make a choice.
Jefferies’ study is only about financial modeling. It looks at how different types of funding—share-swap and cash-funded—might affect things like capital, business integration, and goodwill.
Jefferies' base case is an acquisition of shares through a share swap.
Jefferies’ base case is an acquisition through a share swap, which is thought to be worth ₹1.08 lakh crore.
This is what would happen:
Kotak was going to give out 516 million (51.6 crore) new shares.
This would cause about 21% of the wealth to be lost.
Jefferies says that this is what would happen:
There would be a steady 2.1% return on assets (RoA).
The return on equity (RoE) would be about 13.4%.
This outcome is possible because IDBI Bank’s current capital base would back the combined balance sheet, and the whole deal would be paid for by shares.
Jefferies' Scenarios Funded by Cash
Jefferies also made models of acquisition deals with different amounts of cash.
1,450 naira in cash
₹21,900 crore in goodwill
Interest costs ₹3,200 crore a year (if money is borrowed).
2. An all-cash case
₹48,200 crore in goodwill
The study makes it clear that these are just scenario analyses and don’t say anything about whether Kotak or IDBI is going after a certain funding structure.
Jefferies Brings Attention to Operational Factors
In 2014, Kotak Mahindra and ING Vysya merged. Jefferies uses this to show the nature of integration jobs, such as
Aligning the system
Putting together branches
Putting together customer networks
This reference is only used for practical purposes and not to compare performance.
In the case of Kotak Mahindra–IDBI, the final funding structure would be heavily influenced by the IDBI shareholders, who are mostly the Government of India and LIC. The merger mix would depend on whether they wanted cash or shares.
Capital Flows Across Sectors: What Jefferies Has Noticed
Jefferies says that Indian banks and NBFCs have more than $10.4 billion in strategic foreign investment sitting in their accounts right now, mostly as basic capital.
This includes investors who want to buy loans from lenders like
RBL Bank
Yes Bank
The Federal Bank
The IDFC First Bank
The goal of these flows is to:
Spending on technology
Distribution growth
Adding different products
Jefferies describes these points without making any predictions about how they will be used.
What Jefferies Says About Funding and Deposits
Based on what they’ve seen in the past, Jefferies says:
The way depositors act can change during major mergers.
Customers may move between branches or goods.
Funding costs may change based on how the deal is set up and how the market feels about it.
If there is a merger, deposit handling will still be a very important part of how Kotak Mahindra Bank works.
During these kinds of deals, investors usually keep an eye on three key factors:
Amount of goodwill shown
Where the money for any cash part comes from
Schedule for moving IT
These factors help figure out how earnings might be affected.
Jefferies Lists the Most Important Risks
Jefferies lists a number of risks that often come up when big banks join forces:
Challenges in executing integration
Problems with the credit process
Movement or churn of depositors
Problems with moving technologies
Possible changes to the rules on foreign ownership
Jefferies says these are general risks of mergers that don’t just apply to Kotak Mahindra or IDBI.
Conclusion
While the Kotak Mahindra–IDBI Bank merger remains hypothetical with no official confirmation, Jefferies’ analysis provides a clear picture of how different funding structures and operational factors could influence any such consolidation.
The scenarios emphasise:
The impact of share-swap vs. cash-funded models
How IDBI’s capital base contributes to stability
Operational complexities involved in merging two banking platforms
For now, the merger remains only a sector conversation, but Jefferies’ detailed modelling shows how it might shape up—if ever pursued.
