‘There were more smaller, mid-sized deals than large ones in 2013’

Given the global economic downturn, deals involving mergers and acquisitions are taking longer to close. According to Shanti Ekambaram, President – Corporate and Investment Banking, Kotak Mahindra Bank, the activity levels have not come down, but the deal closures have been a problem. The difference is that, in calendar 2013 there were more number of small and mid-sized deals than large ones. In an interview with Business Line , Ekambaram also said banks should build up their liabilities (especially low cost deposits) portfolio and transactions side of the business, whenever the credit side is muted. Excerpts :

How has the slowdown impacted M&A deals?

Talking about calendar year 2013, in terms of the headline numbers, the volume and value has been similar to last year (2012). However, the catch is that a lot of deals fell off. There were more inbound deals, of about 40 per cent; about 30 per cent were outbound and 30 per cent were domestic deals. But the difference is that there were more number of smaller, mid-sized deals than the large ones.

Close to 1,000 M&A transactions worth about $45 billion were recorded. The activity levels have not come down but the deal closures have been a problem. Hence, from the peak of 2008-09, the volume and value have remained flat and it has been dispersed across a number of (investment) banks but the activity levels still remains high.

Typically, a deal closure in a booming market is higher than in a slowing economy. So, what would normally take 9 months now could take about 18 months to 2 years and still there is no guarantee that a deal can be closed.

In terms of cross-border deals, which regions are you looking at for tapping business?

We are looking at region-specific alliances in Europe to help sector-specific inflows. As of now, US, UK, Japan and Europe contribute to 90 per cent of India’s M&A deals. Africa is also a great opportunity. Hence, companies have gone in for (investment in) natural resources there. Latin America’s currency has devalued and it has its own problems, hence those who have invested there are finding it toughIndian companies have also been going to Australia, Africa and Latin America. As for India, we are a long term investment destination with 1 billion people. If every year, a small percentage (of the population) comes out of poverty, there will be that much more demand for products and services.

What about growth in the banking segment?

There are not many long term funding opportunities; it is mostly refinancing. The growth will be muted in the banking industry. Working capital funding will continue as the cycle of activity has been elongated but long term funding of infrastructure projects has been low. What used to be 25-30 per cent growth earlier will come back to mid-teens.

Consumer (lending business) is still doing well though slowdown will impact and credit growth will remain low. So, it is the right time to build the liabilities business because people also want to feel safe about their money. In fact, we are all driving this strategy now.

How will you go about building liabilities?

We will add 500 branches in the next three years, acquire customers whether retail or wholesale, build liabilities (low cost deposits) and transactions side of the business while the credit side is muted. We are right now developing pools of talent who will directly interact with clients.

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