In a significant development in the financial sector, Kotak Mahindra Bank has received the Reserve Bank of India’s (RBI) approval to acquire 100% stake in micro-lender Sonata Finance. This acquisition marks a crucial step for Kotak Mahindra Bank in expanding its footprint in the microfinance sector.
A Strategic Move
Kotak Mahindra Bank, one of India’s leading private-sector lenders, has taken a strategic step by acquiring Sonata Finance, a non-banking financial company – microfinance institution (NBFC-MFI). The acquisition, valued at approximately Rs 537 crore, was announced in February and has now received the crucial approval from the RBI.
Sonata Finance as a Subsidiary
As a result of this acquisition, Sonata Finance will become a wholly-owned subsidiary of Kotak Mahindra Bank. This transition is expected to bring about significant changes in the way Sonata Finance operates, as it becomes a business correspondent subsidiary of the bank. Upon the completion of the transaction and the receipt of any remaining requisite approvals, Sonata Finance will be fully integrated into the Kotak Mahindra Bank’s operations.
The Financial Picture
Sonata Finance’s financial performance has been notable, with its total income for the fiscal year 2022 standing at Rs 305.7 crore, an increase from Rs 272.2 crore during the previous fiscal year. Moreover, its bottom line showed a significant improvement, rising to Rs 13.6 crore during the fiscal year 2022, compared to Rs 4.4 crore in the previous year.
An Overview of Sonata Finance
Founded in 2006, Sonata Finance is headquartered in Lucknow, India, and primarily operates in 10 states, with a strong focus on the northern regions of the country. It boasts a network of 502 branches and serves nearly 900,000 customers, predominantly comprising women borrowers who operate under the joint liability group model. The company’s total loan book size reached Rs 1,903 crore as of December 2022.
Value Accretive Acquisition
Kotak Mahindra Bank believes that the acquisition of Sonata Finance will be value progressive. This strategic move is expected to bring about economies of scale, unlocking efficiencies, and leveraging the bank’s extensive distribution footprint and cutting-edge technology.
Kotak Mahindra Bank’s Expansion in Microfinance
Kotak Mahindra Bank ventured into the microfinance business in 2017 by acquiring BSS Microfinance. Over time, the bank has significantly expanded its customer base in this sector, reaching over 1 million customers as of Q3FY23.