Axis Bank shares up 5% on Kotak Mahindra merger buzz

Axis Bank shares jumped 4.99% to end at Rs504.60 on BSE. During the day, it rose by 5.88% to Rs508.90

Axis Bank’s market valuation went up by Rs5,780.47 crore to Rs1,20,709.47 crore. Photo: Bloomberg
Axis Bank’s market valuation went up by Rs5,780.47 crore to Rs1,20,709.47 crore. Photo: Bloomberg

Mumbai: Speculation about Axis Bank Ltd being up for sale or a merger refuses to die despite multiple denials by most parties involved.

Shares of Axis Bank Ltd closed 5% higher on Tuesday, their highest gain in more than five months, after CNBC TV-18 reported that several private banks had approached the government to discuss a possible merger with the lender.

Axis Bank closed at Rs504.60 a share, up 5%, while India’s benchmark Sensex index rose 0.4% to 28,761.59 points.

So far this year, Axis Bank has gained 12.1%.

On Tuesday, HDFC Bank Ltd rose by 0.4% and ICICI Bank Ltd by 1%, while Kotak Mahindra Bank closed little changed and Indusind Bank fell 0.5%. All these banks were named as Axis Bank’s suitors by CNBC TV-18.

Axis Bank called the reports about its merger “baseless and unsubstantiated” in a stock exchange statement on Monday.

Rohit Rao, a spokesperson for Kotak Mahindra Bank, said that the bank would “not comment on rumours and speculation”.

ICICI Bank, too, said that it doesn’t comment on speculation.

HDFC Bank and IndusInd Bank did not respond to a query sent on Tuesday.

Department of financial services officials, too, said that they were not aware of any such proposal.

At the end of December, Life Insurance Corporation of India held a 14.6% stake in Axis Bank, while Specified Undertaking of Unit Trust of India, or SUUTI, owned a 11.5% stake.

The report follows market speculation earlier this month that Kotak Mahindra Bank was looking to merge with Axis Bank.

At that time, too, both Kotak Mahindra and Axis denied the rumour, although the former lender’s founder, Uday Kotak, said that he was open to various options.

“We need to see what can be achieved from consolidation between two large private sector banks. It isn’t clear what the benefits are from such a merger, apart from maybe creating a large franchise,” said Karthik Srinivasan, senior vice-president at ratings company ICRA Ltd.

While Axis Bank is India’s third largest private-sector lender, it has reported a string of poor results in the past few quarters because of a rise in bad loans.

For the quarter ended 31 December, Axis Bank reported a net profit of Rs580 crore, down 73% from a year ago, owing to higher provisions to cover bad loans. Its gross bad loans ratio stood at 5.22% at the end of December.

To be sure, Axis is not the only bank facing rising bad loans. Indian banks are sitting on a bad loan pile of at least Rs6.8 trillion, with some commentators advocating consolidation as a way to solve this problem—especially for public sector banks.

On 15 February, the cabinet approved the proposed merger of State Bank of India (SBI) and five subsidiaries—a combination that will create the first Indian lender to rank among the world’s top 50.

Remya Nair in New Delhi contributed to this story.

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