No Call Yet On Indiabulls-Lakshmi Vilas Bank Merger: RBI Governor Shaktikanta Das
The Indiabulls-Lakshmi Vilas Bank merger, announced in April 2018, has received all necessary approvals, but for the all important nod from RBI.
Recently, the Delhi High Court agreed to hear a plea seeking probe against Indiabulls Housing Finance for allegedly advancing dubious loans, misappropriation and diversion of funds to the promoters of Indiabulls Group.
On the flipside, Lakshmi Vilas Bank has been placed under RBI’s PCA framework due to its high level of bad loans, weak capital levels, negative return on assets and high leverage.
The merger, if finalised, will ensure the South India-focused lender the gush of capital it needs.
Meanwhile, the Indiabulls management has been making public pronouncements on how they would bring down their stake if the merger goes through. It claims that it has already started exiting the non-kosher realty businesses.
"As long as a decision is given out in the public domain, it is not correct on our part (to interpret). I would not like to comment on individual cases till we come out publicly," Das said after Friday’s monetary policy decision.
According to Das, placing a lender under the RBI PCA framework is normal with lot of precedents, and reiterated that this is a corrective measure to take care of "regulatory deviations or deficiencies".
"The RBI has put banks under PCA to ensure that timely measures are taken to bring a bank back on the rails where there are certain deviations from regulatory framework we put it under PCA. It involves the taking certain steps to correct those regulatory deviations/deficiencies," he said.
As of March 2019, 11 public sector banks were under the PCA and only a few have come out of the framework since then. The PCA involves curbs on fresh lending above certain thresholds and also expansion activities.
Generally, the triggers for a bank to be placed under PCA are low capital buffers, higher NPAs and net-worth erosion. Once the troubles get rectified, and all the necessary steps are undertaken, RBI brings the bank out of the framework.