The Indiabulls Finance Centre, developed by Indiabulls Real Estate Ltd., stands in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Merger With Lakshmi Vilas Bank Not A Backdoor Entry To Banking, Says Indiabulls Housing

Indiabulls Housing Finance Ltd. said its merger with Lakshmi Vilas Bank Ltd. wasn’t an attempt by the mortgage lender for a “backdoor entry into banking” as the regulator allows such deals.

“[We] emphatically deny that,” Ajit Kumar Mittal, executive director at Indiabulls Housing Finance, told BloombergQuint in an interview. “We now have a clear framework for private sector banking licences, and mergers between NBFCs (non-bank lenders) and banks. In letter and spirit, we qualify for both banking licence and merger process.”

Indiabulls Housing Finance was one of the applicants for a universal banking licence in 2013 when the Reserve Bank of India allowed companies to apply. But it didn’t get one.

The company is confident of getting an approval from the RBI. It will also need approvals from the National Housing Bank and the Securities and Exchange Board of India. The deal, Mittal said, could take 9-12 months to be completed.

“The RBI’s directions provide for a voluntary amalgamation process. It has clear guidelines for this process; we fully meet the guidelines, otherwise there was no point in embarking on this path,” Mittal said. “The RBI has said that entities where at least 60 percent of income and assets are from financial services are eligible. We have a proven track record in financial services.”

The mortgage lender will issue 14 shares for every 100 held by shareholders of Lakshmi Vilas Bank as part of the merger. Indiabulls Housing Finance would get a stable deposit base with access to long-term capital through the merger. It would also be able to leverage cross-selling opportunities with Lakshmi Vilas Bank’s customers, Mittal said.

Real Estate Hurdle?

The RBI has had an aversion to banks taking on high real estate exposures, and also denied banking licences to entities with a considerably large real estate business.

According to Mittal, Indiabulls group’s real estate will not be an impediment in getting regulatory approvals for the merger. “Real estate is just a tiny fragment of our business, both in terms of revenue and assets. We have shrunk our real estate business; now it is very trivial as a percentage of our total business,” he said. “There’s a Chinese wall between the group’s financial services business and the real estate business; it can be even more segregated to give comfort to the regulator.”

Sameer Gehlaut, founder and promoter of the financial services group, will be named the vice chairman of the combined entity, according to a presentation filed with exchange. Gagan Banga, vice chairman and managing director at Indiabulls Housing Finance; and Parthasarathi Mukherjee, managing director and chief executive officer at Lakshmi Vilas Bank, would be joint managing directors. Mittal would be appointed as an executive director.

The combined entity would have a loan book of Rs 1.23 lakh crore with a net worth just shy of Rs 20,000 crore. It would have a gross non-performing asset ratio of 3.5 percent and a capital adequacy ratio of 20.6 percent.

Hear the full conversation here:

Lakshmi Vilas Bank announces merger with Indiabulls Housing Finance. Ajit Mittal of Indiabulls Housing Finance speaks to Vishwanath Nair. #BQLive Read:

Posted by BloombergQuint on Friday, April 5, 2019

Also read: Liquidity Crisis Among NBFCs Will Not Have An Impact After Merger, Says Lakshmi Vilas Bank CEO