“There is an element of fat in the business and we will address it in an evolutionary manner…We are aware of the challenges and we want to make the business productive,” said Uday Kotak, executive vice-chairman and managing director of Kotak Mahindra, in an analyst conference call.

He said they were not looking at any quick monetisation and would deal with the “fat” in the system in only a phased manner. They were not, he said, looking at employee layoffs or branch rationalisation for now.

Uday Sareen, who was chief executive officer-designate at ING Vysya before the acquisition decision, had also emphasised cost effectiveness in the long term but had clarified there would be no immediate cost cutting.

Kotak Mahindra on Thursday announced it was acquiring Bengalaru-headquartered ING Vysya in an all-stock deal. ING shareholders will get 725 Kotak shares for every 1,000 shares they hold. The deal implies a price of Rs 790 for each ING Vysya share, based on the average closing price of Kotak shares during the month to November 19, valuing the deal around Rs 15,000 crore.

Analysts have raised concerns about ING Vysya’s high cost to income ratio of 55.26 per cent, which is 339 basis points higher than Kotak’s 51.87 per cent. However, Kotak believes this will have a short-term impact. “A higher short-term cost to income ratio is a cost to grow the market. Our focus is to continue costs which add muscle and rationalise ones that add fat,” he said.

The high interest payouts on savings bank accounts is also seen as a short-term blip by the management. Upon merger, all depositors will get the same interest rate as on Kotak’s savings deposits (of six per cent above Rs 1 lakh, while ING Vysya offers four per cent). As a result, the combined entity will take an annual hit to profits of Rs 140-145 crore, if the savings rate is maintained at six per cent.

After the merger, Dutch group ING will hold a 6.5 per cent stake in the entity, more than the five per cent holding allowed for any single investor in a bank (above five per cent, Reserve Bank approval is necessary). Uday Kotak said this would not be a concern for the group, as after the merger and subject to regulators’ approval, ING will have no foreign branches in India. And, by RBI norms, if ING has no branch in India, it can hold up to 10 per cent stake in an Indian bank.

Kotak would also leverage ING’s expertise in international corporate banking, the management added. Currently, the Kotak group has presence in several international locations but Kotak Mahindra has no offshore branches. ING Vysya has a strong international clientele as a result of ING Group.

“ING also has a large network in Europe and there are 800 ING clients that have business in India and this can be leveraged, both inbound and outbound,” said Sareen.

In addition to key synergies, Kotak plans to offer tractor financing to ING Vysya customers in Andhra Pradesh and Karnataka, and expand its product suite in the international market. “We would strongly focus on building an international relationship with ING. We look forward to learn about high-quality practices of ING Vysya in the SME (small and medium enterprise) business, digital banking opportunity and international cooperation,” added Kotak.

ING Vysya currently has about 3,000 unionised employees, whose remuneration is based on sector-wide settlements. Kotak said these employees will be given an option to stay on such pay if they opted for it. The management also has no plans to stop other benefits such as pension for these employees.

The management is meeting the ING Vysya Bank officers’ association on Monday.