Lakshmi Vilas Bank Approves Merger With Indiabulls Housing Finance
For every one share of Rs 10 each, shareholders of Lakshmi Vilas Bank will receive 0.14 share of Rs 2 each of Indiabulls Housing.
The board of The Lakshmi Vilas Bank Ltd. has approved a scheme of amalgamation with Indiabulls Housing Finance Ltd., the two entities said in separate notifications to stock exchanges on Friday.
For every one share of Rs 10 each, shareholders of Lakshmi Vilas Bank will receive 0.14 equity share of Rs 2 each of Indiabulls Housing Finance, the bank said in its filing.
The merger will create a large, healthy and diverse asset book, said the bank in its statement. It will also allow them to collectively foray into newer businesses that help increase fee income, the bank added. “The merger will create a stable low-cost funding in the form of public deposits and expanded distribution franchise,” Indiabulls Finance said in its statement.
The merger will need the approval of the Reserve Bank of India. Typically, the regulator does not agree to a bank licence transfer as part of a merger. As such, the licence will continue to be held by Lakshmi Vilas Bank.
Post the merger, promoters of Indiabulls Housing Finance will hold 19.5 percent in the entity in return for the current 21.6 percent they hold in the non-bank lender. The promoters will need RBI approval for holding more than 10 percent in the bank.
The exposure that the Indiabulls Group has in the real estate business will be a factor of consideration for the regulator, which, in the past, has frowned on an overlap between the real estate and the banking businesses.
Watch the interview with Indiabulls Housing Finance’s Ajit Mittal.
What Will The Combined Entity Look Like?
The deal, if approved by the regulators, will have a loan book of Rs 1.23 lakh crore and deposits of Rs 30,787 crore. It will have a gross non performing loans ratio of 3.5 percent and net NPL ratio of 2 percent. Its capital adequacy ratio will stand at 20.6 percent and the tier-1 capital adequacy ratio will be at 14.4 percent.
Return on equity for the combined entity will be 19.2 percent and the return on assets will stand at 2 percent.
What Prompted The Merger?
Non-bank lenders like Indiabulls Housing Finance have faced a tougher fund raising environment since September 2018, when the defaults by Infrastructure Leasing and Financial Services Ltd. roiled the financial markets.
Since then, liquidity has been tougher to come by and the cost has risen.
In the December-ended quarter, Indiabulls Housing Finance saw disbursements fall by 65 percent over the previous three months. The company saw an improvement in the January-March quarter, but disbursements still remain below normal. The company reached about 70 percent of its disbursement target in the three-months ended March, as compared with 40 percent in the October-December period, Ashwini Kumar Hooda, deputy managing director at Indiabulls Housing Finance told BloombergQuint recently. The company was averaging disbursements of about Rs 10,000 crore every quarter before the crisis hit, Hooda said.
Meanwhile, Lakshmi Vilas Bank has faced its own troubles. Bad loans have surged to 13.95 percent and capital adequacy has fallen to 7.57 percent.
Watch the interview with Lakshmi Vilas Bank Chief Executive Officer Parthasarathi Mukherjee: