Kochi: Kerala-based Federal Bank Ltd has moved another step towards acquiring Catholic Syrian Bank Ltd (CSB). In a meeting held in Chennai late last week, directors of the two banks agreed on a deal, setting in a motion for the valuation process.
Federal Bank already holds a 4.99% stake in CSB, an unlisted bank that is also based in Kerala.
The share swap ratio could be between 1.25 and 1.5 shares. This means one CSB share should fetch 1.25-1.5 shares of Federal Bank, whose stock closed at Rs147.25 on Friday.
S. Santhakrishnan, who in January quit the Federal Bank board to join the CSB board, said issues such as pricing had been sorted out at the meeting.
On the name of a combined entity which, according to some people in Federal Bank has been a matter of debate, Santhanakrishnan said such issues wouldn’t impede a merger.
A top official connected with Federal Bank, who didn’t want to be named, said that although CSB was being overvalued, a price would have to be paid for retaining the acquirer’s brand name.
While the boards of the two banks have not endorsed the merger yet, they are expected to meet later this month to approve the union.
The proposal will then be put up for regulatory clearance, and once the approval is secured, the due diligence process will begin. It would then take just weeks for the merger to happen, added Santanakrishnan.
CSB has a branch network of 375, while Federal Bank has more than 615 branches.
Santhakrishnan said not only would jobs at both banks be protected, talks between the two banks point to the merged entity recruiting more employees. Federal Bank reported a net profit of Rs472 crore for the fiscal year ended March, while the net profit of CSB stood at Rs37 crore.
While electing a new board at the annual general meeting in September, a majority of CSB shareholders had favoured a merger with Federal Bank. Thailand-based non-resident Indian, Surachan Chawla bought 2.14 million shares of CSB in 1994, acquiring a 38% stake in the bank.
However, neither the Foreign Investment Promotion Board nor the Reserve Bank of India (RBI) approved the share transfer to Chawla, a decision he challenged.
It was only in 2008 that RBI approved the share transfer, subject to the condition that Chawla would only hold 10% and sell the rest. Chawla now has a 21% stake in the bank.