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RBI rejects proposed IHFL, Lakshmi Vilas Bank merger

New Delhi: In a setback to Indiabulls Group's plans to enter the banking space, the Reserve Bank on Wednesday rejected the proposed merger of Indiabulls Housing Finance (IHFL) with troubled private sector lender Lakshmi Vilas Bank.

Speculations were rife about the fate of the merger, announced in April this year, after the Reserve Bank of India (RBI) imposed restrictions on Lakshmi Vilas Bank due to its weak financial health.

The regulator's decision also comes against the backdrop of both the entities being entangled in legal woes.

"...this is to inform that RBI vide their letter dated October 9, 2019, informed that the application for voluntary amalgamation of lndiabulls Housing Finance Limited and lndiabulls Commercial Credit Limited with the Lakshmi Vilas Bank (LVB) cannot be approved," the bank said in a stock exchange filing.

The bank did not cite any reason for rejection of the merger proposal. The Tamil Nadu-based bank had sought approval for merger with Indiabulls Housing Finance from the RBI on May 7, 2019.

The merger proposal had received all necessary approvals, but the all-important nod from the RBI was pending since May.

Last month, the bank was placed under Prompt Corrective Action (PCA) framework of the RBI due to high level of bad loans, lack of sufficient capital to manage risks and negative return on assets for two consecutive years.

The RBI move came amidst the Delhi Police's Economic Offences Wing registering a complaint against the board of LVB alleging cheating and misappropriation of funds.

Generally, the triggers for PCA are low capital buffers, higher NPAs and networth erosion. Once the troubles get rectified and all the necessary steps are undertaken, the RBI gets a bank out of the framework.

For FY19, the bank's net NPA stood at 7.49 per cent, capital adequacy ratio was at 7.72 per cent and its return on assets was (-) 2.32 per cent. It had reported a net loss of Rs 894.10 crore for 2018-19.