(Bloomberg) -- An Indian court and the police force are poised to begin separate investigations to examine allegations of fraud and misappropriation against Indiabulls Housing Finance Ltd. and Lakshmi Vilas Bank Ltd., two lenders that have sought approval to combine.
Delhi High Court on Friday agreed to hear a petition that alleges Indiabulls gave loans worth billions of rupees to shell companies. The Delhi Police’s Economic Offences Wing registered a complaint against the board of Lakshmi Vilas Bank alleging cheating and misappropriation. The lenders are awaiting a nod on their merger deal from the country’s central bank, which has stepped up scrutiny of the proposal.
The merger is crucial for shadow lender Indiabulls, which is seeking to diversify its asset base, while the bank needs to raise capital to meet regulatory norms. Rating companies Crisil Ltd., Care Ratings and ICRA Ltd. have cut Indiabulls long-term ratings in recent weeks as a yearlong cash crunch weighs on its asset quality and raises borrowing costs.
Indiabulls denied the allegations in the court and said that the loans mentioned in the petition were secured and most of them have been repaid. Registration of police complaint against Lakshmi Vilas Bank “does not mean anything, at this stage,” the bank said in an exchange filing, adding that the company is committed to cooperate with the investigating agencies and regulatory authorities.
Shares of Lakshmi Vilas Bank fell 5% in Mumbai on Friday, the most in three weeks, while those of Indiabulls Housing dropped 5.7%. Indiabulls’s $350m 6.375% notes due 2022 fell 0.7 cents on the dollar to 86.4 cents as of 6:28 p.m. in Hong Kong, according to prices compiled by Bloomberg.
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