Thursday, October 6 2005 15:49 Hrs (IST) - World Time -

New Delhi: Federal Bank Ltd announced the acquisition of Kerala-based Lord Krishna Bank (LKB) in a deal pegged at around Rs 300 crore. The Boards of Federal Bank Ltd and LKB today (Oct 6, 2005) gave their nod to the merger, the second such deal this year among private banks.

The loss-making LKB said its Board of Directors met and considered, among other things, the proposal for merger with Federal Bank. ''After discussions, the Board gave an in-principle approval to consider the merger of the two banks subject to due diligence, valuation and necessary approvals from the shareholders and the concerned authorities,'' it said in a statement here.

Banking sources said the proposed acquisition of LKB could be around Rs 300 crore. However, the two banks refused to give details on the quantum of the deal.

The synergies are to be derived from the fact that both the banks have strong presence in the South, especially Kerala and will expand their customer base. The resultant economies of scale will impart efficiency to the new entity.

''The LKB Board decided to take a final view on the structure and process of such merger if the outcome of the due diligence, valuation and other related studies are found acceptable to both the banks and subject to other necessary approvals,'' LKB said.

Federal Bank, which posted a net profit of Rs 90.1 crore last fiscal, said in a statement to the Bombay Stock Exchange that, ''The board has constituted a committee to take necessary steps for conducting financial and legal due diligence, obtaining and arriving at a valuation, evaluating the proposals for payment of consideration for merger of LKB and placing before the board its recommendations.''

The Mumbai-based Centurion Bank Ltd bought over Bank of Punjab Ltd in the first private sector take over in recent times. Finance Minister P. Chidambaram has stated that the United Progressive Alliance (UPA) Government will encourage consolidation in the banking sector to enable them to reach global scale.

Analysts expect the deal to be a stock swap as Federal Bank needs funds for its growth. In August, Federal Bank had announced plans to raise Rs 450 crore through a Global Depositary Receipts issue.

LKB posted a loss of Rs 34 crore last fiscal and its interest income was Rs 195 crore. Its net bad loans stood at 4.12 per cent as of March 31, 2005. LKB was founded in 1940 in Kodungallur in Trichur district of Kerala. In the 1960s, 3 commercial banks merged with LKB. The bank now has a nation-wide network of 112 branches.

Federal Bank has a network of 456 branches covering almost all the important cities in the country with a dominant presence in Kerala with 339 branches. It has a strong franchise in retail banking, NRI business segment and SME segment.