Federal Bank, LKB boards okay merger

The boards of Federal Bank and Lord Krishna Bank (LKB) today in-principle cleared the merger of LKB with Federal Bank. "The merger is expected to be through within a month after carrying out the due diligence process, valuation and necessary regulatory approvals," said M Venugopalan, chairman, Federal Bank.

The boards met in Mumbai today. Law farm Amarchand Mangaldas has been appointed as legal advisor to Federal Bank. DSP Merrill Lynch is LKB's investment banker. According to sources, the cost of acquisition could be less than Rs 300 crore.

An LKB statement said the board met today and considered, among other things, a proposal for merger with Federal Bank. "The 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," the statement said.

LKB, founded in 1940 in Kodungallur in Trichur district of Kerala, has 112 branches. Federal Bank has a network of 456 branches covering almost all important cities in the country with a dominant presence in Kerala with 339 branches.

The merger of Kochi-based LKB with Aluva-based Federal Bank will create a private sector bank, headquartered in Kerala, with assets over Rs 19,300 crore on March 31, 2004, which will be about 15 per cent more than Federal Bank's asset size.

LKB director Mohan Puri, who holds around 65 per cent stake in the bank, would get about 10 per cent stake in Federal Bank, after the merger. RBI guidelines on ownership in private banks do not allow a single entity to own more than 10 per cent stake.

LKB posted a net loss of Rs 21.76 crore in 2004-05. Federal Bank's net profit last year was Rs 90.08 crore. Federal Bank's capital adequacy ratio (CAR) in March 2005 was 11.27 per cent, while LKB's CAR was 11.74 per cent. LKB's net non-performing asset last year was 4.22 and that of Federal Bank was 2.21 per cent.

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POWER FACTOR

The merger is expected to be through within a month

It will create a private sector bank, headquartered in Kerala, with assets over Rs 19,300 crore on March 31, 2004, about 15% more than Federal Bank's asset size

The cost of acquisition could be less than Rs 300 crore

LKB director Mohun Puri will get about 10% stake in Federal Bank, post-merger