Deal to merge Indiabulls Housing and Lakshmi Vilas Bank hangs in balance.

The deal to merge Indiabulls Housing Finance (IBHF) and Lakshmi Vilas Bank (LVB) hangs in balance as RBI which received the proposal around 4 months ago hasn’t reached to any decision. While one of the financial service regulators has given the No Objection to the deal, the ED and ITD haven’t said anything yet.

Two institutional shareholders of IBHF have also shown interest to raise stake in the merged entity above 5% — a move that would infuse equity as well as dilute Gehlaut’s stake. The promoters currently hold 21.5% in the IBHF.

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RBI received an application for amalgamation and has not made a decision on the proposal.

RBI has allowed Indiabulls to invest Rs 250 crore in bonds to be issued by LVB to shore up its capital adequacy ratio. However, since these bonds would be cancelled on merger, Indiabulls is likely to finalise its decision on the investment once the merger application is approved by the banking regulator.

RBI is looking at various issues.

Even if the RBI insists on additional conditions for the merger — like extra capital requirement or composition of board and management — it is yet to indicate it. There are different views within the RBI on the proposal which, according to regulatory officials, may encourage other NBFCs to take the merger route to obtain a banking licence. RBI, said a person, is carrying out a “snap inspection” of Indiabulls Commercial Credit, a subsidiary of IBHF which would also be merged with the private sector bank.

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Under the circumstances, shareholders and management of LVB are awaiting the regulator’s decision. The bank has raised capital this year by issuing shares to institutional investors and will seek the shareholders’ approval at its AGM this month to raise additional equity. LVB is currently headless and may have to soon consider appointing an interim CEO. One of the independent directors of LVB may be considered for the job.

Indiabulls will able to reduce real estate exposure to a comfortable level.

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