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Big is beautiful: Lakshmi Vilas Bank, Indiabulls Housing to merge

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 strengthens the case for the merger. Parthasarathi Mukherjee, MD & CEO of LVB, said informal discussions had been held with RBI and there had been no hit 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 SS 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 `92.75 for LVB and Rs 903.15 for Indiabulls, works out to a premium of 36.3% for LVB shareholders. In the past two months, IBH shares have jumped around 40%, while those of LVB have risen 60.5%.

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

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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 the 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. Indiabulls shares have witnessed a 32.5% decline in the last one year, while LVB shares have only dropped 2.4%.

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 today. 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.

Indiabulls has access to large northern and western markets of India, while LVB has a heavy presence across southern India allowing the merged entity to create a pan-India presence. Meanwhile, Indiabulls will get access to stable low-cost funding in the form of public deposits and expanded distribution franchise.

The amalgamated entity will have a total net worth of Rs 19,472 crore with a combined loan book of Rs 1,23,393 crore. The merged entity will have a capital adequacy ratio of 20.6%.