LVB,Indiabulls HFC to merge in all-stock deal, all eyes on RBI

Lakshmi Vilas Bank (LVB) Friday said it will merge with Indiabulls Housing Finance (IBHF) to create the eighth largest private sector lender in an all- stock deal, a move that will be keenly watched on how it passes the regulatory muster.

The second largest pureplay mortgage lender IBHF, whose promoters have exposure to the realty sector--something that makes the banking watchdog uncomfortable--was one of the many unsuccessful applicants for universal banking licence in the last round in 2015.

The partners intend to christen the merged entity as 'Indiabulls Laxmi Vilas Bank'.

The two parties seem to be betting on immediate precedents, where the RBI has given the green signal to similar mergers, and cited the HDFC-promoted affordable housing-focused Gruh Finance's merger with Bandhan Bank and mid-sized NBFC Capital First merging with IDFC Bank last year.

"I am not aware whether there was any specific demerit found in their (IBHF's) application," LVB managing director Parthasarthi Mukherjee told reporters on a call late evening.

He further said the board of the old generation private sector bank, which has two RBI nominees, unanimously voted to go ahead with the merger. The bank has had informal dialogue with the Reserve Bank on the merger plan and that there has been no hint of any disapproval so far.

The Karur, Tamil Nadu-based and capital-starved bank will get the required growth fund and an entry into the Northern and Western states where IBHF has a strong presence, while mortgage lender will get low cost funds, he said, explaining the benefits of the deal.

It can be noted IBHF has found the going to be tough in the recent past because of the NBFC crisis that began last September following the IL&FS bankruptcy.

The mid-sized lender has a loan portfolio of Rs 25,000 crore, while the same for IBHF is over Rs 1 lakh crore, its vice-chairman Gagan Banga said.

Under the deal, 14 shares of IBH will be given to every 100 shares of LVB.

IBHF promoter Sameer Gehlaut will be the vice-chairman of the merged entity, and Banga and Mukherjee will be the joint managing directors.

Mukherjee said promoters' shareholding will come down to 19 percent post-merger and hinted at paring it down further on regulatory demand.

The RBI guidelines on on-tap licensing released in August 2016 says, "any NBFC, which is a part of a group that has total assets of Rs 5,000 crore or more and if the non- financial business of the group accounts for 40 percent or more in terms of total assets/in terms of gross income, is not eligible."

The RBI's concerns on allowing promoters from the realty sector, brokerages and diversified conglomerates have also been widely reported.

"How the RBI perceives this entity for transferring the banking licence would remain a key factor for further development," analysts at Choice Broking said in a note.

Both the entities will first seek stakeholder approvals, after which they will go to the regulators, including RBI, fair-trade regulator watchdog Competition Commission and capital markets regulator Sebi.

Mukherjee did not speculate on a timeframe required for the deal to pass through all the necessary approvals, while Banga said it may take up to 12 months.

The bank will be renamed as Indiabulls Laxmi Vilas Bank post-merger, Mukherjee said, adding it will have a healthy capital adequacy of over 20 percent if one goes by December quarter numbers.

Mukherjee said the bank was talking to multiple partners for capital infusion and added the benefit of scale will result in a faster growth with geographical expansion as the prime deal clincher. It would have otherwise taken a lot of time for us to get to this size, he added.

"We are now at the threshold of a fast take-off. What we were looking for was capital," he said, adding both the parties are eager to work with each other.

He also exuded confidence of getting its unionised employees on the side, saying they've been supportive.

Mukherjee declined to call LVB as an "orphaned child", but conceded that it is now going to a "rich parent" and the "handicaps" will be removed to a fair extent now.

The merger will also be profitable from profitability and return on equity perspective, he said.

As against a 0.46 percent gain on the benchmark, IBHF shares gained 0.53 percent to Rs 903.15, and LVB rallied 4.98 percent to Rs 92.75 on the BSE.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)