RBI rejects Lakshmi Vilas Bank-Indiabulls Housing Finance merger plan
The Reserve Bank of India (RBI) on Wednesday rejected the merger proposal between Lakshmi Vilas Bank and mortgage lender Indiabulls Housing Finance Limited.
Lakshmi Vilas Bank confirmed the development in a stock exchange filing and said RBI has denied the merger proposal.
“This is to inform that RBI vide their letter dated October 09, 2019, informed that the application for voluntary amalgamation of lndiabulls Housing Finance Ltd and lndiabulls Commercial Credit Ltd with Lakshmi Vilas Bank Ltd cannot be approved,” Lakshmi Vilas Bank said.
If the RBI would have approved the move, this would have been the first ever incident where a non-bank lender would have merged with a bank in the country. However, the central bank’s letter put end to months of speculation over the merger.
Lakshmi Vilas Bank and Indiabulls Housing
Both Lakshmi Vilas Bank and Indiabulls Housing may face deep cuts in stock market operations on Thursday after central bank denied merger of both the entities.
It may be noted that both Lakshmi Vilas Bank and Indiabulls Housing have been performing poorly on the stock market after facing allegations of misconduct. However, the rejection of the proposed merger is particularly a big blow to Lakshmi Vilas Bank.
The central bank had placed Lakshmi Vilas Bank under prompt corrective action (PCA) last month due to a high level of non-performing assets, insufficient capital to manage risks and negative return on assets for two consecutive years.
RBI’s disapproval poses a fresh challenge for Lakshmi Vilas Bank which will now have to look at opportunities to raise capital independently-a gargantuan task considering the current state of India’s banking sector.
The merger plan was crucial for Lakshmi Vilas Bank as it would have helped it raise capital, which is required to lift the PCA restrictions currently imposed on it by the central bank.
Ajit Kumar Mittal
Indiabulls Housing, too, will be affected by the central bank’s decision as it was seeking to diversify its asset base. After the deal was rejected, Indiabulls Housing executive director Ajit Kumar Mittal said they are relieved as there will be no more uncertainty in the market over the proposed merger plan.
The group, which is currently seeking options to exit its real estate business, has already sold several of its assets to private equity firm Blackstone. Meanwhile, the board of the company will meet again on October 14 to consider the share buyback proposal.
Indiabulls Housing Finance is seeking to exit the real estate business at a time when it is fighting public interest litigation (PIL) which demands a probe to be conducted by a special investigation team against Indiabulls Housing Finance citing serious violations. The matter will be next heard on October 24.