Federal Bank eyes merger with southern entity

Close on the heels of a merger between two new generation private sector banks, the fifth largest private sector bank "" Federal Bank Ltd "" is eyeing a merger with an old private south-based bank.

"We want to change our image from being strong in Kerala to being a south-based bank," the bank's chairman & CEO M Venugopalan told  Business Standard.

Federal Bank also proposes to raise about Rs 350-crore either by way of a public offering or a global depository receipt (GDR) latest by September end. The preference today is for a public issue in order to improve the liquidity of the bank shares in the domestic market.

Following the public issue/GDR, ICICI Bank's 20 per cent holding in Federal Bank will stand reduced to about 15 per cent, said Venugopalan.

"The fund-raising exercise will help meet our growth plans for the next two years," said Venugopalan.

The bank has targeted a growth rate of 30 per cent in advances during the current year, against last year's actual growth rate of 24 per cent. The bank's current capital adequacy ratio stands at 11 per cent.

Speaking on the possibility of merger with a south-based bank, Venugopalan declined to name any specific bank, stating that talks have not taken place.

However, he pointed to quite a few strong players in the south including Indian Bank, The Lakshmi Vilas Bank Ltd, Karnataka Bank, South Indian Bank and Lord Krishna Bank Ltd, and Dhanalakshmi Bank Ltd among others.

Strong in Kerala, with 31 per cent of deposits coming from non-resident Indians, Federal Bank proposes to set up a branch in the Middle East to "serve our clientele", said Venugopalan.

Quite a few private sector banks have jumped onto the bandwagon of setting up a branch in UAE. The bank has applied for 50 additional licences, of which it proposes to open 40 branches outside Kerala and strengthen its presence in Kerala with an additional 10 branches.

On its growth plans, Federal Bank proposes to reduce the percentage of corporate lending to 30 per cent, against last year's 39 per cent, while retaining emphasis on the small and medium enterprises (SMEs).

"We intend to focus on retail lending, especially on the home loan segment," said Venugopalan.