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Lakshmi Vilas Bank, Indiabulls Housing Finance set to merge

The Indiabulls board has constituted a reorganisation committee headed by S S Mundra, independent director on the board of Indiabulls and former RBI Deputy Governor, to undertake necessary decisions in relation to the proposed merger. (File)

Written by Mitali Salian

Indiabulls Housing Finance (IBH) is taking a second shot at entering the banking space with a proposed merger with Lakshmi Vilas Bank (LVB). The Reserve Bank of India (RBI) had denied Indiabulls Group a banking licence in 2013.

Experts observed the presence of two RBI nominees on the board of LVB - and the unanimous approval from the board - bolsters the case for the merger. Parthasarathi Mukherjee, MD and CEO, LVB, said informal discussions had been held with RBI and there had been no hint of a disapproval.

According to the proposed management structure within the merged entity, Sameer Gehlaut is likely to take over as vice-chairman of the amalgamated entity, while IBH VC and MD Gagan Banga and Mukherjee have been proposed for joint MD positions, and Ajit Mittal could take over as executive director, a presentation on the Indiabulls website said.

The Indiabulls board has constituted a reorganisation committee headed by S S Mundra, independent director on the board of Indiabulls and former RBI Deputy Governor, to undertake necessary decisions in relation to the proposed merger.

Shareholders of LVB will get 0.14 equity share of a face value of Rs 2 each, of IBH, for every one share of Rs 10 face value. Based on Friday's BSE closing price of Rs 92.75 for LVB and Rs 903.15 for Indiabulls, it works out to a premium of 36.3 per cent for LVB shareholders.

In the past two months, IBH shares have jumped around 40 per cent, while those of LVB have risen 60.5 per cent.

Banga said the promoter stake in the company is 21.5 per cent and would fall to 19.5 per cent post amalgamation. Banga said the entity was willing commit to a reduction in the stake to below 15 per cent during the merger.

Mukherjee said the bank has been looking for capital and has been in discussions with several investors. "We were not keen to remain a regional outfit and the merger will see us as a much bigger player. The size was certainly an important factor," Mukherjee said. The Tier I capital post the merger could be in the region of 14 per cent. The merger will help LVB's profitability; the lender has been through a rough patch on account of non-performing legacy assets. The better geographical spread - IBH is strong in the north and west, while LVB is primarily present in south - should help the new entity. As per the scheme, every shareholder of LVB who holds 100 shares of the bank will get 14 shares of Indiabulls Housing Finance.

The LVB board approved a scheme of amalgamation with lndiabulls Housing Finance on an ongoing basis with dissolution of the bank without being wound up, the bank said in a regulatory filing Friday. The transaction will need approvals from the RBI, National Housing Bank, the Securities and Exchange Board of India, Competition Commission of India, National Company Law Tribunal New Delhi and Chennai benches. "This is an amalgamation. This is not strictly a new bank licence and if you look at how Indiabulls Housing is placed today it qualifies under all the norms required even for a new bank licence," Banga said in an interview to a TV channel.

LVB has total assets of Rs 40,429 crore and capital and reserves of Rs 2,328 crore as on March 31, 2018, while IBH has total assets of Rs 1,31,903 crore and consolidated net worth of Rs 17,792 crore as on December 31, 2018.

The amalgamated entity will have a total net worth of Rs19,472 crore with a combined loan book of Rs 1,23,393 crore. The merged entity will have a capital adequacy ratio of 20.6 per cent.