Federal, a private sector bank based in Kerala has resumed talks of merger with Thrissur based, Catholic Syrian Bank (CSB).

Federal bank had initiated the talks a year ago after acquiring a 5% stake in CSB from the Chawlas, an NRI family, which still owns well above 25% and is the single largest shareholder in the bank. Three private equity funds had picked up a stake of 14% in CSB in 2007,AIF Capital (5%), Gartmore and Siguler 4.5 % each. Federal bank acquired the stake at Rs 250-300 per share. Other stakeholders include some Thrissur-based companies.

The merger talks started after three new directors joined the board of CSB. The new directors are in favour of the merger, the previous directors were opposed to it.

Federal has said that it has started the financial due diligence process of CSB. A due diligence process is an investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale.

This merger will result in combined balance sheet strength in excess of Rs 43,000 crore. The combined entity of the banks will have an income of nearly Rs 1,700 crore and net profits in excess of Rs 150 crore. While Federal Bank had an income of Rs 1,016 and net profits of Rs 114 crore in the financial year 2008-09, income for CSB stood at Rs 656 crore with Rs 37 crore net profits. The branch network of combined entity will touch nearly a 1,000, with Federal's 612 branches and CSB's 363.

Moreover, the deal will give an exit to the private equity players. Many PE funds in India have made exits from investments in banks. A few of these are Yes Bank (ChrysCapital, Citigroup Venture Capital and AIF), Centurion Bank of Punjab (Sabre Capital, India Value Fund, ICICI Venture, ChrysCapital) and UTI Bank (Actis).