Kotak Mahindra Bank announced the acquisition of 100 percent of the equity shares of Sonata Finance, a non-banking finance company-microfinance institution, on February 10.
Here’s an explainer on the deal:
What was the announcement?
Kotak Mahindra said it will acquire all of Sonata Finance’s equity stake from existing shareholders for an all-cash consideration of about Rs 537 crore. The acquisition is subject to regulatory and other approvals, including from the Reserve Bank of India.
What is Sonata Finance?
Sonata Finance, with its registered office in Lucknow, was acquired by Anup Kumar Singh in January 2006 and converted to an NBFC-microfinance institution on December 3, 2013.
The company advances microfinance loans to the economically weaker sections of society, in particular women. It operates through 502 branches in 10 states and had 2,882 employees as of December 31. It has about 900,000 active loans.
What was Kotak’s rationale for acquiring the company?
Kotak Mahindra said Sonata’s network complements its microfinance branch network. The bank will be able to provide a wider suite of banking products to Sonata’s customer base, matching their emerging banking needs.
Is this the first time Kotak is buying a microlender?
This is not the first time that Kotak is acquiring a microfinance company. The bank acquired BSS Microfinance in an all-cash deal for Rs 139 crore in 2017.
What do analysts think about this deal?
Analysts are bullish about the Kotak-Sonata deal and said it will significantly change the bank’s presence in the rural areas and the microfinance side.
“This is part of the inorganic growth strategy of the bank. It will be an attempt to increase the franchise and get more into rural banking,” said Sanjay Agarwal, senior director at Care Rating.
Some experts said microfinance will not be easy for Kotak Mahindra Bank.
“They might be trying to fulfil certain rural obligations,” said Vikas V Gupta, CEO of OmniScience Capital.
So, why does this deal make sense for Kotak?
Analysts said Kotak has a significant amount of regulatory capital and would put it to use prudently and opportunistically.
“With the acquisition of Sonata, Kotak gets to expand its microfinance business into the complementary geographical areas of north India and even sell other banking products to these new customers,” said Shivaji Thapliyal, head of research at Yes Securities.
Have there been other recent MFI acquisitions by banks?
IndusInd Bank and Bharat Financial Inclusion merged on July 4, 2019 after the National Company Law Tribunal approved the transaction on June 10, 2019.
In August 2022, Yes Bank managing director Prashant Kumar told Moneycontrol it is open to acquiring smaller entities, especially from the microfinance segment.
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