ICICI Bank on prowl for LKB

Monday 19, June, 2006 ICICI Bank, India?s largest private bank, is on the prowl. The bank has approached the Kerala-headquartered Lord Krishna Bank (LKB) to discuss a possible acquisition of the latter. However, no deal has been struck, and talks are at an initial stage.

A buyout will help ICICI Bank expand its presence in Kerala and overcome restrictions on branch expansion imposed following the demat scam.

This would be ICICI Bank?s second acquisition after Bank of Madura (BoM) if the deal goes through. BoM gave ICICI Bank a foothold in Tamil Nadu; buying LKB would help it consolidate its position in the South. However, B Swaminathan, managing director & CEO of LKB, firmly denied merger talks.

But sources said ICICI Bank has initiated talks with the Puris, the dominant shareholders in LKB. Last year, Federal Bank had reached an advanced stage in merging LKB with itself, but the deal fell through over valuation differences. Sources said Federal Bank is still open to revisit the old deal, but LKB seems to have lost interest.

Federal, which has 339 branches in Kerala, was willing to fork out Rs 275 crore, but LKB had refused to accept anything below Rs 325 crore. Sources said the Puris have raised the price significantly since then, possibly due to its improved performance and dip in bad loans.

LKB hit the news when GE Capital, which was keen to set up a bank in India, had offered around Rs 450 crore for the bank. The proposal made no headway as RBI refused to give a banking licence to GE. The Puris hold around a 63% stake in LKB, while the Burmans of Dabur family hold around 5.4%.

Of late, RBI has denied fresh branch licences to private players like ICICI Bank and HDFC Bank following the demat scam. ICICI Bank has a network of 610 branches and extension counters and 2,200 ATMs. LKB has a network of around 115 branches, of which around 75 are in Kerala.

ICICI Bank?s assets as on March 31, ?06 stood at Rs 2,51,388 crore, while LKB is said to have around Rs 2,700 crore. If the merger materialises, ICICI Bank will have to tackle a strong trade union and differences in culture.

Sources said some foreign banks are also keen on a stake in LKB. However, according to current norms, a foreign bank without a branch presence can pick up only up to a 10% stake in a private sector bank, while others can buy only up to 5%.

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