Mumbai, October 9: The Reserve Bank of India on Wednesday disapproved Lakshmi Vilas Bank Ltd's proposal of a merger with Indiabulls Housing Finance Ltd (IHFL). The information came to light after LVB made this announcement in a stock exchange filing. The merger plan was approved by private sector LVB's board in April and then submitted it to the central bank for approval on May 7, 2019.
Announcing the disapproval of RBI, LVB stated on Wednesday, as quoted by the Live Mint, "This is to inform that RBI vides their letter dated October 09, 2019, informed that the application for voluntary amalgamation of Indiabulls Housing Finance Ltd and Indiabulls Commercial Credit Ltd with Lakshmi Vilas Bank Ltd could not be approved." NPAs Cost Indian Banks, Rs 1.76 Lakh Crore Lost in 3 Years Due to Waiving Loans of Defaulters, Reveals RBI Report.
The report of disapproval by the RBI comes amid the economic crisis, which has gripped the banking sector too. Aiming at increasing the profitability and bolster capital, LVB and IHFL have proposed a plan to merge themselves in an all-stock deal in the market.
According to details, LVB is looking forward to raising capital to come out of the lending curbs, while Indiabulls is aiming at diversifying its asset base. Earlier, the share price and dollar bonds of IHFL plunged at the stock market after Delhi High Court admitted a petition against it and RBI imposed restrictions on the LVB.
Citing the high level of bad loans, negative return on assets (RoA) for two consecutive years, insufficient capital adequacy ratio and high leverage, RBI placed it under prompt corrective action (PCA). Stating the reason for disapproval, RBI noted that it audited risk-based supervision for the Fiscal Year 2019-20 and then made its decision. RBI's Relaxed Approach on Economic Crisis Keeps Door Open For Further Rate Cuts, Experts Worry About Lower GDP Forecast.
It is to be known that under corrective action, RBI restricts lenders from issuing big corporate loans to reduce the lender's concentration of risk. Also, it limits the opening of new branches. Apart from this, the police are investigating alleged misappropriation of funds by LVB directors.