Lakshmi Vilas Bank-Indiabulls Housing Finance merger has been approved by Board. The proposed merger of Lakshmi Vilas Bank with Indiabulls Housing Finance will create a much stronger entity. The Reserve Bank of India yet hasn’t given its nod of approval.
Once the application is submitted, the RBI could take at least a month to decide on the proposed merger. In a statement, LVB said there was no prior notification to the RBI, adding that the process of applying to the RBI is now on hand.
While the Board has unanimously approved the resolution, the RBI Nominee Directors, as is the practice at the bank, did not have to participate in the voting or express any views. An analyst said the RBI has not been very keen on allowing real estate players in the banking sector. But given the financial situation of Lakshmi Vilas Bank, this could be the only solution. The analyst also pointed out that Indiabulls Housing had applied for a banking licence in 2013 but to no avail.
But since then, Indiabulls Housing Finance bought 40 per cent stake in British lender OakNorth Bank in 2015 with two nominees on its Board after intense PRA [Bank of England] scrutiny on fit and proper.
IBH has also made a case for its eligibility for a banking licence from the RBI in the investor presentation released on Friday when the deal was announced, pointing out that it has a successful track record of over 20 years.
The private sector bank reported net losses for five straight quarters and had a net loss of ₹584.87 crore in 2017-18 with gross NPAs at 9.98 per cent.
Its financial situation has been in turmoil. The bank incurred a net loss of ₹629.66 crore for the third quarter ended December 31, 2018 with gross non-performing assets at 13.95 per cent of gross advances. Its Tier-I capital is currently at 5.6 per cent and a capital adequacy ratio of 7.7 per cent.
RBI clarifies said that a day after the LVB board approved the merger of the private sector lender with Indiabulls Housing Finance (IBH) through a share swap deal, the Reserve Bank of India clarified that the presence of its two nominee directors on the bank’s board does not imply approval of the proposal.
The shareholders of IBH will own 90.5 per cent of the amalgamated entity, while those of LVB will hold the balance 9.5 per cent. Indiabulls founder and Chairman, Sameer Gehlaut’s stake will come down from 21.5 per cent to 19.5 per cent. He will further bring his holding down to below 15 per cent before the merger is effective.
As a first step towards the proposed merger, IBH’s board has constituted a reorganisation committee headed by independent director and former RBI Deputy Governor SS Mundra.
