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RBI rejects proposed merger of Lakshmi Vilas Bank, Indiabulls Housing Finance

The worsening financial profile of the bank and the court case involving Indiabulls could have prompted the RBI to reject the approval for merger, bankers said.

The Reserve Bank of India (RBI) has denied approval for the voluntary amalgamation of lndiabulls Housing Finance Limited (IBHFL) and its 100-per cent subsidiary lndiabulls Commercial Credit Limited (ICCL) with Chennai-based Lakshmi Vilas Bank Limited (LVB).

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

After Indiabulls made the merger proposal, the bank had taken up with “applicable regulatory authorities for approval of the amalgamation process”. “The bank had also sought approval from the RBI on May 7, 2019,” the bank said. In April, LVB had announced its merger with Indiabulls Housing Finance in a share-swap deal, with an intent to create an entity with larger capital base and wider geographical reach. The Competition Commission of India had already approved the merger.

The share swap ratio for the merger was fixed at 1:0.14, which means that for every 100 shares of LVB held by shareholders, they would have received 14 shares of IBHFL, according to the filing on the stock exchanges. Indiabulls had attempted to enter the banking sector about six years ago, when the RBI sought applications for a banking licence. However, it failed to receive the license from the monetary authority in 2014.

The worsening financial profile of the bank and the court case involving Indiabulls could have prompted the RBI to reject the approval for merger, bankers said. The RBI had last week initiated Prompt Corrective Action (PCA) for LVB in the wake of high non-performing assets (NPAs) and low capital adequacy ratio.

According to the bank’s Annual Report for 2018-19, many accounts have slipped into NPAs from different segments including corporate, MSME and retail. The total slippage during FY18-19 was to the tune of Rs 1,412 crore. Gross NPAs stood at Rs 3,358.99 crore as of March 2019 while the net NPA was Rs 1,506.30 crore, against which a provision of Rs 1,785.27 crore has been made.

In percentage terms, the gross NPAs were 15.30 per cent of the advances. The bank made a loss of Rs 894 crore in fiscal 2018-19 and Rs 237 crore in the June quarter of 2019-20. The bank’s gross advances as on June 30, 2019 were to the tune of Rs 20,556 crore with net interest income at Rs 123 crore. Total deposits were pegged at Rs 28,980 crore. As of June 2019, the bank’s operations are spread over a network of 569 branches (includes 7 banking branches, one satellite branch) and 5 extension counters with pan India presence, supervised by 7 Regional Offices.

The Delhi High Court had last month sought response of the Centre and the RBI on a plea seeking an SIT investigation into the alleged illegalities, siphoning of funds and violations committed by the promoters of Indiabulls Housing Finance. A Bench of Chief Justice D N Patel and Justice C Hari Shankar issued notice to the central government, the Reserve Bank of India and Indiabulls seeking their stand on the petition filed by an NGO. The court listed the matter for further hearing on December 13.

The court was hearing the PIL filed by NGO ‘Citizens Whistle Blower Forum’, whose members include former Delhi High Court Chief Justice A P Shah, former Chief of Naval Staff Admiral L Ramdas, former IAS officer Aruna Roy and activist-lawyer Prashant Bhushan. The plea has sought an SIT investigation into the alleged illegalities committed by the promoters of IBHFL. Indiabulls had earlier opposed the plea saying it was a “malicious” and “mala fide” petition, which was causing loss to its business and reputation.

The Economic Offences Wing of the Delhi Police has registered a FIR against Lakshmi Vilas Bank, its directors and other unknown persons on a complaint made by Religare Finvest Ltd (RFL) regarding “adjustment” of Rs 794 crore deposit loan.