Allahabad Bank plans to acquire a south-based private sector bank by March 2005 in order to gain a firm foothold in the region.

A bank official, on condition of anonymity, said that Karnataka Bank and Lord Krishna Bank are the two main banks that are being targeted. Both Karnataka Bank and Lord Krishna Bank have, however, denied the possibility of being taken over.

The managing director of Lord Krishna Bank, R M Nayak, said, "This is the wildest speculation that I have heard so far."

O N Singh, chairman and managing director of Allahabad Bank, earlier told a press conference, "We plan to diversify and concentrate in south, either organically or inorganically. We have done the due diligence of the private player of a size of about 300-400 branches and a total business of Rs 10,000-15,000 crore (Rs 100-150 billion) with the knowledge of the promoters of private banks (sic)."

Singh was in Bangalore to review the bank's operations. On the time required to commence the process of acquisition and appoint an investment banker, Singh said, "It is too early for appointing an investment banker. It will take about three months and the entire merger/acquisition will happen before March 2005."

Highlighting other developments in the bank, Singh said he planned to bring down the net NPA from 3 per cent this fiscal to one per cent. Plans are on to invest Rs 300 crore (Rs 3 billion) over the next 2-3 years for implementing the core banking solution to link 400 branches.

The bank is also looking at SAARC and South East Asian countries for overseas expansion. Representative offices have also been planned in China, Singapore, Colombo and Malaysia or Indonesia.

The bank is targeting a net profit of Rs 400 crore (Rs 4 billion) during this fiscal and its officials are confident of exceeding the operating profit target of Rs 750 crore (Rs 7.50 billion) and a business of Rs 47,000 crore (Rs 470 billion).

Allahabad Bank is one of the weakest public sector banks. In 2002-03, its net-NPA to advances at 7.08 per cent was the third highest among 27 public sector banks. Allahabad Bank posted a return on assets of 0.63 per cent the same year, the fifth lowest among public sector banks.

Both Karnataka Bank and Lord Krishna Bank posted an ROA of 1.29 per cent in 2002-03. Karnataka Bank posted a net NPA of 7.36 per cent in 2002-03 and Lord Krishna Bank of 6.33 per cent.

When asked about implementing the core banking solution, Singh said that Allahabad bank was is an advanced state of discussion with a vendor for the technology platform.

"About 100 branches will implement the core banking solution by 2005 and another 300 branches in 2006," he added.