Speculation over a merger between Federal Bank and Jana Small Finance Bank (Jana SFB) intensified on Tuesday after a television channel reported that the Kerala-based lender was in advanced talks to acquire a controlling stake in the small finance bank.
CNBC-TV18, citing sources, reported that Jana SFB’s promoter, Jana Holdings, is likely to sell its entire 16.9% stake to Federal Bank, a transaction that would trigger an open offer. Shares of Federal Bank fell 3% on the BSE on Tuesday, while Jana SFB slipped 2%.
Since regulations bar one bank from owning another, investment bankers said any acquisition of a controlling stake would eventually have to culminate in a merger.
“A bank cannot own a bank, so it will necessarily have to merge. There will be a stock swap, and Jana’s shareholders will get shares of Federal Bank,” an investment banker said.
Both lenders played down the reports. In a clarification to the exchanges, Federal Bank said it evaluates various opportunities for growth and expansion in the ordinary course of business. “Further, we clarify that there is no material event/information that requires disclosure,” it said. Jana SFB issued a similar clarification.
The reported transaction comes as Jana Holdings faces pressure to repay a Rs 700-crore loan from TPG Asia, which holds an 8.11% stake in Jana SFB. According to the media report, the loan was rolled over for six months on June 30 after Jana Holdings agreed to sell its stake in the bank.
A merger, if it happens, would substantially enlarge Federal Bank’s balance sheet and geographical footprint. Based on FY26 numbers, the combined entity would have total assets of around Rs 4.35 lakh crore, potentially overtaking IDFC FIRST Bank to become the eighth-largest private sector bank by assets.
Jana SFB, valued at around Rs 6,028 crore, would also give Federal Bank a foothold in markets where its presence is thin. The small finance bank operates 826 outlets across the country and serves around 4.7 million active customers, with a presence in states such as Odisha, Madhya Pradesh, Bihar, Rajasthan and Uttar Pradesh, where Federal Bank’s branch network is relatively small.
The deal would add to Federal Bank’s portfolio of subsidiaries and associates. It currently holds 60.7% in Fedbank Financial Services, 100% in Federal Operations & Services and 30% in Ageas Federal Life Insurance Company.
For Jana SFB, the merger would also offer a route into universal banking. The Bengaluru-headquartered lender applied for a universal bank licence in June last year, but the Reserve Bank of India rejected the application as it did not meet the eligibility criteria. Jana SFB subsequently said it planned to reapply.
The two banks bring different lending profiles to a potential combination. Federal Bank’s net advances grew 15% year-on-year to Rs 2.77 lakh crore as of June 30, while Jana SFB’s advances rose 26% to Rs 37,612 crore.
Jana SFB’s loan book is diversified across affordable housing, micro loans against property, MSME loans and gold loans, among other segments. Its unsecured portfolio stood at Rs 10,240 crore as of June 30, with 80% covered under a guarantee programme.
Asset quality, however, is weaker at Jana SFB. Its gross non-performing asset (GNPA) ratio stood at 2.24%, against Federal Bank’s 1.52%, and the GNPA ratio on its unsecured book was significantly higher at 6.7%.
If the deal goes through, Federal Bank would gain scale, a wider distribution network and greater exposure to underpenetrated markets, while taking on Jana SFB’s relatively weaker asset-quality profile