A Choppy market and hardening interest rates may have taken the sheen off bank stocks. But that hasn’t put off deal makers. Federal Bank, a Kerala-based private sector bank, has bought 5% shares of Catholic Syrian Bank (CSB) and is in the process of winning the support of other CSB shareholders to go for a full-fledged takeover. Federal Bank is said to have acquired these shares at Rs 250-300 per share. CSB is a small, unlisted private bank, also based in Kerala.
Federal Bank has been looking for an acquisition and was in talks, even recently, with another private bank in Tamil Nadu. However, it spotted an opportunity in CSB when the RBI last week cleared a longstanding issue to allow Chawlas to subscribe to an old rights issue of CSB that the NRI family was earlier disallowed. The Chawlas have already sold 5% to Federal Bank. Now with the rights subscription, Chawlas’ stake would be 27%. According to an RBI official, the regulator can give a formal go-ahead to a merger of the two banks once the CSB board considers the proposal.
Once Federal receives the green signal from CSB, it will appoint a merchant banker for the deal formalities. CSB spokesperson said nobody had approached the bank for a share transfer. Federal Bank officials confirmed that it had picked up the 5% stake in CSB. In spite of repeated attempts , M Venugopalan, chairman of Federal Bank, was not available for comment.
The Federal management is also expecting that the proposed merger will receive support from some of the other shareholders like TS Anantharaman and his associates and some of the private equity funds which had last year picked up a 14% stake.
In all likelihood , these shareholders would like to have an exit option. CSB has a network of around 361 branches of which around 200 branches are in Kerala and Tamil Nadu alone. As on March 31, it had a balance sheet size of Rs 5960 crore and a capital adequacy ratio of 10.87%. It had posted a net profit of Rs 36.56 crore and a deposit base of Rs 5317.62 crore.
Federal Bank is one of the largest old private sector banks. It had reported a net profit of Rs 368 crore as on March 31, 2008.
Source: Economic Times