Federal Bank Ltd shares were in focus on Monday after reports of merger with Kotak Mahindra Bank Ltd. Federal Bank stock hits new 52-week high 129.75 per share on the National Stock Exchange on Monday.
The Kerala-headquartered bank, however, said in an exchange filing that the report was speculative and there was no information available with the company that needs to be reported as per the extant guidelines of the Securities and Exchange Board of India (SEBI).
Still, if the merger were to go through, it could face several challenges, say analysts at Emkay Global Financial Services.
According to the domestic brokerage house, the deal could be mutually beneficial for both the banks considering the potential synergy benefits. “For Federal, the merger could provide access to a larger banking/product platform, capital and productivity gains,” said Emkay’s September 6 report. Moreover, technology integration will be less of a challenge, given that both the banks are technically agile as well as working on the same CBS platform.
But a possible change of guard amid the ING Vysya acquisition following resistance from Federal Bank’s employees’ union and a blockade by Kotak Mahindra Bank made the deal less likely, the brokerage house warned. As nearly 80% of Federal Bank employees are part of unions (35% for ING Vysya Bank), employee unions can block any such takeover, Emkay’s report highlighted.
“Reportedly, ICICI Bank had made an attempt in the past to acquire Federal Bank, but was thwarted by employee unions with a strong lineage of the ruling Left party in the home state of Kerala. Even though the deal was successful completion , looks at cultural integration with Federal employees, who are largely residents of Kerala, and the high cost-per-employee may be harassed,” the report said.
“Despite the speculative deal, we believe that a fundamentally strong Federal Bank, with a stable management, healthy liability profile, an improved return profile and a digital edge over small to medium-sized private banks, demands better valuations, ” couple. report good.
It is to be noted that Emkay has buy rating on both these banking stocks. The broking house feels that the pick-up in credit growth and the recent moderation in G-Sec yield could be additional catalysts for both the banks.
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