BUSINESS

RBI rejects Indiabulls Housing, Lakshmi Vilas Bank merger deal

Dashed hopes:A merger would have given Indiabulls Group access to low-cost funds.Bijoy Ghosh  

The Reserve Bank of India (RBI) has rejected the merger proposal of Indiabulls Housing Finance and Lakshmi Vilas bank (LVB), the latter said in a regulatory filing on Wednesday.

“... this is to inform that RBI vide letter dated October 9, 2019, informed that the application for voluntary amalgamation of Indiabulls Housing Finance Ltd. and Indiabulls Commercial Credit Ltd. with The Lakshmi Vilas Bank Ltd. cannot be approved,” LVB said in the regulatory filing.

While Lakshmi Vilas Bank did not disclose the reason for the rejection of the merger proposal, people with direct knowledge of the matter said negative feedback from various agencies, including investigative and regulatory bodies, on the mortgage financier could be the prime reason.

“Indiabulls Housing probably has not met the fit and proper criteria of the banking regulator,” said a source.

The merger was important for the housing finance company which would have given it access to low cost funds, at a time when the non-banking financial sector is facing a crisis of confidence with banks choking lending to the sector.

Indiabulls Group has been mired in controversy in recent times with eminent lawyer Prashant Bhushan filing a public interest litigation alleging financial irregularities and siphoning of funds.

The company had, however, refuted all the allegations.

Indiabulls Group founder and chairman Sameer Gehlaut’s name appeared in the Panama papers, an area that the banking regulator looked into while vetting the merger proposal, the source said.

Indiabulls Housing had applied for a universal banking licence when the RBI invited applications in 2013 but failed to secure one.

Indiabulls Group had significantly reduced stake in its real estate arm, which is now below 20%, to become eligible for a banking licence. RBI norms do not allow any group that derives over 40% of its revenue from non-financial activities to enter the banking sector.

The merger was equally crucial for LVB as it was in desperate need of funds. The lender’s capital adequacy ratio at end June was 6.46%, way below the regulatory requirement.

LVB is now under the prompt corrective action framework of the RBI due to a high level of bad loans and insufficient capital.

Now that the merger will not happen, the uncertainty of the last five months is lifted and the company will focus on growth of its core business of housing finance, Indiabulls Housing Finance said. The entities had announced the merger in April and sought approval from the RBI in May this year.