Kochi: Kerala-based Federal Bank Ltd has moved another step towards acquiring Catholic Syrian Bank Ltd(CSB), with a former director who played a key role in shaping the take over plan joining the board of CSB.
S. Santhanakrishnan, a chartered accountant who was until recently on the Federal Bank board, confirmed that he was inducted as a director of CSB on Friday in place of Iype Peter, who resigned recently.
Peter, a former employee of Federal Bank, had been elected to the CSB board in September 2008. His resignation was intended to allow the induction of Santhanakrishnan, who quit the Federal Bank board prior to taking his new position.
Federal Bank had in August acquired a 4.99% stake in CSB, which is also based in Kerala. Santhanakrishnan, as a member of the Federal Bank board, had cited a shared work culture as favouring a union between the two lenders. He said the acquisition may take shape before the end of this fiscal.
Federal Bank is Kerala’s largest bank, with 600 branches, a net worth of Rs3,919.33 crore and a net profit of Rs368.05 crore in 2007-08. It has been scouting for possible acquisitions since its rights issue last year, which raised Rs2,056 crore.
CSB’s net profit last year was Rs36.56 crore. It has a net worth (sum of equity and reserves) of Rs263.62 crore. On 15 January, CSB completed its rights issue for raising Rs180 crore. Founded in 1920, CSB is one of the oldest banks in the state and 200 of its 360 branches are in Kerala.
In September, the unanimous appointment of five directors on the board of the Thrissur-based CSB at its annual general meeting was seen as having cleared the decks for its possible takeover by Federal Bank. Federal Bank would require a CSB board resolution accepting the merger when it formally makes a takeover proposal.
Federal Bank acquired the 4.99% stake in CSB from Thailand-based businessman Surachan Chawla, who had a 38% stake in the bank. Following regulatory restrictions by the Foreign Investment Promotion Board and the Reserve Bank of India(RBI) , he divested a portion of his stake, and must sell another 17%. Under RBI bank ownership norms, no entity can hold more than 10% in a bank.
Meanwhile, L&T Finance Ltd has applied for taking a 4.99% stake in CSB. A top official of CSB, who did not want to be named, said that once RBI gives its approval, the Chawla stake would come down to around 21%. Given adverse market conditions, there is also the likelihood of the Chawla group seeking permission from RBI to extend the deadline for diluting the stake to 10% before 31 March.