The board of directors at India's Federal Bank Ltd approved on Wednesday the potential acquisition of unlisted Lord Krishna Bank, Federal Bank Chairman M. Venugopalan said.
"We have approved the acquisition in principle, but the details are yet to be worked out," Venugopalan told Reuters. "The details would be known after due diligence and valuation."
Both banks confirmed the approval shortly after. Ahead of the announcement, Federal Bank shares had risen 0.5 percent to 195.65 rupees in a weak Mumbai market, valuing it at $295 million.
If the deal goes through, it would be the second such acquisition this year in the banking sector after Centurion Bank Ltd took over Bank of Punjab Ltd in a deal worth $82 million.
Federal Bank, with about 400 branches concentrated in the southern state of Kerala, is expected to get a pan-Indian presence with nearly 55 of the 112 branches of Lord Krishna located in the west and north.
The move comes at a time when Finance Minister Palaniappan Chidambaram is pushing the banking sector, including state-run banks, to consolidate so that they can compete effectively.
Analysts expect the deal to be a stock swap given the need for cash to fund Federal Bank's growth.
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