Centurion-LKB swap fixed at 5:7

The eagerly anticipated merger of the Centurion Bank of Punjab (CBC) and Kochi-based Lord Krishna Bank (LKB) has finally taken off, paving way for consolidation in the Indian banking industry.

The boards of the two banks have approved a swap ratio of 5:7 where for every five shares of LKB, shareholders would receive seven shares of CBC.

The all share swap deal, without any cash component, will involve sale of 9.33 crore shares of LKB in return for fresh issue of Rs 13 crore shares of CBC.

The two banks will call an extraordinary general meeting in the next 30 days to seek shareholders nod and thereafter approach regulator Reserve Bank for approval.

To shore up its Tier I capital, Centurion is also undertaking preferential allotment of 17 crore equity shares. Of this, 7.5 crore shares are being issued to India Advantage Fund V, acting through its investment manager ICICI Venture Funds Management Co Ltd, at Rs 24.54 per equity share for a total consideration of Rs 184 crore.

Another 9.5 crore shares are being issued to Bank Muscat, at Rs 25 per share for a total consideration of Rs 237.5 crore. The entire exercise is expected to bring in Rs 421.5 crore for the bank.

"This is a landmark agreement that has a lot of strategic rationale for us. Firstly, the combined entity would have strong nationwide network of 360 branches, with the RBI approval to open 30 more. Secondly, we will gain a footprint in Kerala where we will focus on small businesses, non resident Indians as well as households", said Rana Talwar, chairman, Centurion Bank of Punjab.

This would be the second major merger for Centurion after it merged with Bank of Punjab in October 2005 and became Centurion Bank of Punjab.

"We already have a critical mass but there is merit in the argument that we can scale up some more and we'll continue looking at targets. The inorganic growth could be for geographical spread or for acquiring newer functional specialisations in say, mutual funds, liabilities handling, SME lending etc," said Shailendra Bhandari, managing director and chief executive officer, CBC.

As part of this merger, CBC, explained Talwar, has also committed that there would be no closure of rural branches, no retrenchment of workforce and all the LKB employees would get a one time increment post merger.