Diamond Trust Bank wrote to the CBK on Tuesday asking to acquire Habib Bank.
In a notice to Central Bank, DTB said the transaction will be completed in July.
“The transaction is subject to regulatory approvals in Kenya and Pakistan,” CBK governor Patrick Njoroge said in a statement.
CBK will provide further updates as the transaction progresses.
DTB commenced operations in 1946 as a financial institution.
It converted into a fully-fledged commercial bank in 1997 and merged with Premier Savings and Finance Limited in March 1999.
DTB has a footprint in Kenya, Tanzania, Uganda and Burundi with a network of 61 branches around Kenya.
It was ranked 6th out of 41 banks with a market share of 6.1 per cent as at December 31, 2016.
Habib Bank was established in 1941 in Mumbai, India and its head office moved to Karachi, Pakistan, in 1947.
It has been operating in Kenya since 1956 when it opened its first branch in Mombasa.
It was ranked 33rd out of 41 banks with a market share of 0.34 per cent, as at December 31, 2016 and a network of six branches.