RBI setback for Lakshmi Vilas Bank, Indiabulls
MUMBAI: The Reserve Bank of India (RBI) on Wednesday rejected the proposed merger between Lakshmi Vilas Bank and Indiabulls Housing Finance Ltd, scuppering the attempt by the non-bank lender to merge with a bank. “This is to inform that RBI vide their letter dated October 09, 2019, informed that the application for voluntary amalgamation of Indiabulls Housing Finance Ltd and Indiabulls Commercial Credit Ltd with The Lakshmi Vilas Bank Ltd cannot be approved,” the bank said in a filing to stock exchanges.
Uncertainty around the banking regulator’s approval has been an overhang on the two stocks, with shares of Indiabulls Housing losing 73.45% and Lakshmi Vilas losing 71% since the all-stock merger was announced in April.
Last month, RBI placed Lakshmi Vilas Bank under prompt corrective action (PCA) owing to the high level of bad loans, insufficient capital adequacy ratio, negative return on assets (RoA) for two consecutive years and high leverage. For the year ended March 31, the bank’s net non-performing assets stood at 7.49%, capital adequacy ratio at 7.72% and RoA at -2.32%.
Under PCA, banks are mandated to cut lending to companies and focus on reducing concentration of loans to certain sectors. They are also restricted from opening new branches and paying dividends. Additionally, the bank requires prior approvals for entering into any material transaction other than in the usual course of business.
Lakshmi Vilas Bank will now have to independently explore options for raising capital to help lift the restrictions placed on it.
At its annual general meeting on September 27, the bank’s shareholders approved resolutions authorizing the bank to raise further capital up to ₹1,000 crore by selling shares and ₹500 crore by way of bonds.
The rejection of the proposed merger comes despite several attempts by Indiabulls promoters to assuage RBI’s concerns over control of the merged entity and Indiabulls’ links to the real estate sector, a major cause of stress in the country’s banking and shadow banking sectors.
On Wednesday, Indiabulls Housing executive director Ajit Kumar Mittal said the company is relieved that the cloud of uncertainty is over.
“For us, it’s back to business as usual. We have surplus liquidity of ₹20,000 crore and we’d like to now deploy it in several ways like buyback of shares, etc. We have not applied our mind on applying for a small finance bank licence as it doesn’t fit in well with our business,”said Mittal.
Seeking approval for the merger, Indiabulls promoter Sameer Gehlaut had promised the regulator that he would relinquish all control and rights, have no say in the management, and bring the promoter group shareholding below 10% in the bank after the merger, The Economic Times reported on August 9.
The group is also in the process of exiting its real estate business and has sold part of several of its assets to Blackstone.
THE CENTRAL BANK REJECTED THE PROPOSED MERGER BETWEEN LAKSHMI VILAS BANK AND INDIABULLS HOUSING