RBI rejects merger of lndiabulls Housing Finance with Lakshmi Vilas Bank

The bank had sought approval from the Reserve Bank of India (RBI) on May 7, 2019

The Reserve Bank of India (RBI) on Wednesday rejected the proposed amalgamation of lndiabulls Housing Finance and Lakshmi Vilas Bank (LVB), two weeks after the banking regulator initiated prompt corrective action (PCA) against the Chennai-based bank.

The RBI said the application for the voluntary amalgamation of lndiabulls Housing Finance (IBHFL) and its subsidiary lndiabulls Commercial Credit with LVB could not be approved. 

LVB officials declined to comment on the matter. 

IBHFL in its statement to the stock exchanges said, “Now that the merger will not happen with Lakshmi Vilas Bank, the uncertainty of the last five months on the business is lifted and the company will focus on its growth of the core business of housing finance.”

IBHFL also said it was considering a buyback of equity shares of the company, for which it has called a board meeting on October 14. “The company upon buyback of securities will have a ratio of aggregate of secured and unsecured debts to the paid-up capital and free reserves of not more than 6:1 on standalone and consolidated basis,” the statement said. 

In June this year, the Competition Commission of India (CCI) had given its nod to the proposed amalgamation.

On September 26, the Economic Offences Wing of the Delhi Police registered a first information report against the LVB board, alleging cheating and misappropriation. 

IBHFL and LVB had proposed a merger between the two in April in a share-swap deal under which LVB shareholders would get 14 shares of IBHFL for every 100 equity shares held in the bank. 

According to the plan, IBHFL would hold around 90.5 per cent of the post-merger enhanced equity capital of the merged entity, while shareholders of LVB would hold around 9.5 per cent. Under the proposal, IBHFL Chairman Sameer Gehlaut would be non-executive chairman of the new bank, while IBHFL Vice-Chairman and MD Gagan Banga and then LVB MD and CEO Parthasarathi Mukherjee were to be appointed joint MDs of the amalgamated bank. Mukherjee resigned in August from LVB.

While the news came after the close of trading on the stock exchanges, LVB shares closed 5 per cent lower on the BSE at Rs 27, while IBHFL shares ended 2.3 per cent higher at Rs 240.30.