Timely and effective integration
of ING Vysya staff and managers will be key to success
RBI Watch Banking Structure
India’s regulations do not allow for a hostile takeover of
one bank by another. Friendly takeovers are allowed, and this is done through
the board approved merger route. For those interested in the regulatory detail
(surprisingly easy to digest), please see this link.
In keeping with this, the boards of Kotak Mahindra Bank and
ING Vysya Bank announced their decision to merge – ING Vysya Bank will
amalgamate with Kotak Mahindra Bank in all stock deal. Here is an example of
two strong parties coming together with the potential to become even stronger.
Uday Kotak was under considerable pressure to reduce his
promoter stake in Kotak Bank by the RBI even as ING Group, especially after the
financial crisis of 2008, was keen to give up its promoter status at ING Vysya.
Kotak is considered a North and West based Bank, while ING Vysya is a South
based bank; Kotak has a stronger presence in retail, whereas ING Vysya has a
stronger presence in SME. So there is a congruence of promoter and business
interests. And the deal has come cheaper for Kotak than some recent deals.
It looks likely that getting the necessary regulatory
approvals will not be a major problem – either from the RBI or the Competition
Commission of India. This will take about a year.
To my mind, the real difficult part for Kotak Mahindra Bank
is after the acquisition: Kotak Mahindra Bank has a unique culture which
accounts hugely for its success, and can it get the ING Vysya staff and
managers to evolve into ‘’Kotakans’’.
Kotak Mahindra Bank’s culture is less about form and almost
totally about performance. It inculcates in its staff and managers to be fair,
encourages open debate on tough issues, rewards merit generously, gives young
staff greater responsibility than at other banks; yet expects it staff and
managers to follow the rules and regulations.
Kotak Bank managers work very long hours – to finish work at
8-00 pm appears to be routine. I remember recently meeting by chance a young
mother and her son on a train. When I asked her what her husband did she told
me he was a Kotak Mahindra bank manager of one of the tier 2 city branches. She
glowed with pride that her husband worked at Kotak Mahindra Bank, but she also
made it clear that her husband spent long hours at work.
ING Vysya’s culture is different. Sure it has had a very
experienced and progressive CEO during the last five years, who has built a
good bank. Yet ING Vysya comes with some of the trappings of an old private
sector bank. Its staff is more unionised, many come under the IBA wage structure,
and are likely to be older than Kotak Bank staff.
Then there is the issue of finding work for those of the ING
Vysya staff who in due course are found to be surplus. Kotak Mahindra Bank has
announced that efforts will be made to find suitable roles for them in the rest
of the Kotak Group.
Uday Kotak and his top team are aware of these challenges,
and I am sure will start working on these issues right away. Newspapers have
reported that Uday Sareen, the CEO designate at ING Vysya, will report directly
to Uday Kotak after the acquisition. Surely, his role will be to tell Uday Kotak
and his top team not just the nuts and
bolts of ING Vysya’s business, but of its culture – the formal, and more
importantly, the informal rules of getting things done at his former bank –employees,
and union. And when does his role start? I guess he needs to be also an Advisor
to Kotak Mahindra Bank during the next year or so when the regulatory approvals
will be in place. There have been reports
that Uday Sareen has already started meeting employees in town hall meetings.
Despite the challenges, I believe Kotak Mahindra Bank will
succeed in getting the ING Vysya staff and managers to become ‘’Kotakans’’.
Kotak Mahindra Bank will have its hands full over the next three years, and
there will be some ‘’icebergs’’ along the way that will require deft handling.
Uday Kotak is considered by many a financial wizard. His
real strength, to my mind, has been his soft skill: his ability to build a
solid team and organisation. Perhaps the New Year will see him addressing some
town hall meetings.
