Lakshmi Vilas Bank-Indiabulls Housing Finance Merger Plan Rejected By RBI  

The Reserve Bank of India (RBI) on Wednesday rejected the proposed merger between Tamil Nadu based Lakshmi Vilas Bank and another embattled lender India Bulls Housing Finance Ltd, months after the bank had sought its approval on May 7.

RBI’s rejection of the proposed merger between Lakshmi Vilas Bank and Indiabulls Housing Finance Ltd, brings down the curtains on what was seen as the first ever attempt by a non-bank lender to merge with a bank in the country.

"The RBI vide their 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 (LVB) cannot be approved," Lakshmi Vilas Bank said in a statement.

The crucial merger was for Indianbulls was to diversify its asset while for Lakshmi Vilas Bank, running in loss for five successive quarters, it was to raise capital to come out of the lending curbs. Both lenders -- one in ‘shadow’ banking space, while another in the formal banking space -- have been facing headwinds of late.

The board of directors of the bank on April 5 had approved a scheme of amalgamation with Indiabulls Housing Finance.

The RBI's rejection of amalgamation comes shortly after it had initiated Prompt Corrective Action (PCA) against the Lakshmi Vilas Bank, owing to high non-performing assets (NPA) and others.

On Sep 28, the bank announced: "The RBI has initiated PCA on account of high net NPA, insufficient capital to risk assets weighted ratio (CRAR, also known as capital adequacy ratio CAR) and common equity tier-1, negative return on assets for two consecutive years and high leverage."

For the year ended 31 March, the bank had announced that its net non-performing assets stood at 7.49%, capital adequacy ratio at 7.72% and RoA at -2.32%.

The PCA comes after the RBI carried out an on-site inspection of the Bank on March 31 under Risk Based Supervision.

According to the bank, the Reserve Bank has advised the RBI on the restrictions imposed and the actions to be taken.

The Lakshmi Vilas Bank said it will report the monthly progress on the RBI directions.

"The PCA is aimed at improving the bank's performance and will not have any adverse impact on its normal day-today operations, including acceptance/repayment of deposits in the normal course," the bank said.

Meanwhile the credit rating agency, Brickwork Ratings India Pvt Ltd has revised the rating from "BWR BBB -" (Credit Watch with Developing Implications) to "BWR BB+" (Credit Watch with Developing lmplications) for the bank's unsecured redeemable non-convertible subordinated lower tier II bonds - Series VII (Option B), of Rs.50.50 crore.

With the merger proposal shot down by the regulator, Lakshmi Vilas Bank will now have to explore options for raising capital to help lift the restrictions placed on it.

Late last month(Sep 19), the Economic Offences Wing, Delhi registered a First Information Report (FIR) under complaint for offences of cheating, criminal breach of trust by banker, criminal misappropriation and against the directors of board, LVB; director, LVB, Connaught Place based on a complaint by Religare Finvest.