Top Indian banks are acquiring assets as they look to build scale to reach the length and breadth of the market. After the announcement of the HDFC Bank-HDFC merger and Axis Bank’s purchase of Citi’s retail assets, analysts now wonder if Kotak Mahindra Bank will revive its interest in taking over Axis Bank, or IndusInd Bank, or a smaller niche bank.

In the last few years, Kotak has held merger talks with some private peers including Axis Bank in 2018 and IndusInd Bank in 2020. While the respective managements of these banks have denied holding any such talks, Uday Kotak, promoter of Kotak Mahindra Bank, has said in the past that the bank is “open to looking at inorganic growth as long as it is sensible”.

Kotak Mahindra Bank has total assets of ₹4.79 lakh crore while its market capitalisation is nearly ₹3.6 lakh crore, making it the fourth most valuable lender.

Axis Bank has total assets of more than ₹10 lakh crore and its market cap is ₹2.4 lakh crore. IndusInd Bank has assets of more than ₹3 lakh crore.

Some analysts speculate that Kotak Mahindra Bank could also explore other private lenders like Yes Bank having an asset base of ₹2.7 lakh crore, IDFC First Bank with assets of ₹1.6 lakh crore, and Federal Bank having assets of more than ₹2 lakh crore for potential merger to achieve size and scale.

“Kotak is scouting for good quality inorganic growth opportunities in the financial services space and such options are few and far between,” said Asutosh Mishra, head of research at Ashika Stock Broking. “The government wants to privatise several state-run banks but whether the synergies and the merger issues are worth the effort is questionable.”

Siddharth Purohit, fund manager at equity investment advisory InvesQ, however, said, “My view is that Kotak won’t go chasing for inorganic opportunities, they are pretty conservative and RoA (return on assets) matters for them. For Kotak, there are enough and more areas to scale organically and they will look to grow aggressively in those areas.”

Meanwhile, elevated cost ratios and Uday Kotak’s imminent retirement at the end of 2023 are a drag on the stock. Kotak’s share has given nil return in the past year, underperformed Nifty by nearly 20% and Bank Nifty by almost 10%.

Kotak, who has served the bank for nearly 20 years, will complete his term at the end of December 2023 and retire from his executive position. As per the new Reserve bank of India rules, a managing director, CEO, or a whole-time director of a bank who is also a promoter, cannot hold these posts for more than 12 years. Kotak, though, may continue to hold the non-executive position and remain the largest shareholder of the bank after giving up his executive position.