Proposed merger of Federal Bank, CSB gathers momentum

The proposed merger of two Kerala-based private sector banks, Federal Bank and Catholic Syrian Bank (CSB), has gathered pace after the parliamentary elections, though there are some serious roadblocks to be cleared.

There is still no formal proposal before either of the boards but indications that the matter is picking up some pace. The boards seem to have discussed the idea on their respective sides. Federal already holds 4.99 per cent of CSB’s equity.

It is learnt that a section of the board of Federal Bank feels there are many issues that need to be checked. Neither it, nor the CSB board has taken up the matter formally.

Federal has apprehensions about overlap of branch networks. A major chunk of the 370 branches of CSB are in Kerala and that too close to the branches of Federal Bank.

A top management source in the latter said a merger with a bank having branches outside Kerala would be more attractive. The combined entity would have around 1,000 branches and could be well ahead of other private banks of Kerala in branch network and business.

It is learnt that influential CSB shareholders are pressing for a swap ratio of 1:1.75-2 (1 CSB share should fetch 1.75-2 shares of Federal Bank). Some senior officials of Federal Bank feel this will be over-valuation of CSB.

Recently, the price of a Federal Bank share had surged to Rs 250, while CSB was neither a listed company, nor was fully under core banking. Its computerisation is also incomplete. CSB has a more traditional style of operation, while Federal’s working style is similar to that of new-generation private banks.

Federal employees are not favouring the move since they apprehend it will affect their promotions. However, there is no open opposition yet.

There are also non-economic factors, such as the opinion of the Catholic church, to be taken into account. There was an apprehension, since softened, that the church would prefer CSB to retain its identity.