NEW DELHI: Following the announcement of merger of
Lakshmi Vilas Bank
and Indiabulls Housing Finance (IBHC), the Reserve Bank of India (
) over the weekend clarified that it has not taken any call on the deal as the two entities have not sought its approval yet.
Analysts feel the deal is easier said than done. While there have been a few NBFC-bank mergers of late, they do not mean an easy passage for the LVB-IBHF merger, they say.
Indiabulls Housing Finance had in 2013 applied for a banking licence, but RBI has rejected the application.
“When they (Indiabulls) were not given direct licence back then, should they be given a licence at this stage? That is the question RBI will face from a logical and regulatory perspective,” Sandeep Parekh, Founder, Finsec Law Advisors, told ETNOW.
Parekh said RBI would consider a host of things, including the asset-liability mismatch, which is inherent in most financial institutions.
Lakshmi Vilas Bank itself has faced regulatory scrutiny, he noted, adding that it too would require a fairly detailed scrutiny before RBI gives go ahead.
The central bank on Saturday clarified that presence of RBI-nominated additional directors on the board of LVB in no way implies its approval to the merger proposal. In a statement, it said the additional directors have clearly mentioned at the meeting that they have ‘no view on the proposal’.
In January, RBI cleared the merger of housing finance company Gruh Finance with a balance sheet of Rs 20,000 crore with Bandhan Bank (Rs 47,000 crore balance sheet). Also, NBFC Capital First merged with IDFC Bank in December last year.
RBI looks at each deal very closely, said Jagannadham Thunuguntla of Centrum Broking .
“It may not use a blanket template to give go ahead to every merger of this format. They will probably have to go through the backgrounds and corporate structures. At this juncture, we will have to wait and watch, because if this deal goes through, probably we can expect at least five to 10 more such deals,” Thunuguntla told ETNOW.
Indiabulls Housing claims it fits all the criteria for a banking licence as per guidelines for ‘on tap’ licensing of universal banks. It said all of its board members are nominated by resident Indians on the nomination and remuneration committee, as prescribed. It said the HFC has a track record of nearly 20 years.
The company has been profitable in each year of its operations, meets the criteria of having total assets in excess of Rs 5,000 crore. It has 100 per cent of its assets and profits from financial sector against RBI’s requirement of at least 60 per cent.
Even considering all companies sharing the Indiabulls brand name and a common promoter, 88.5 per cent of total assets and 81.2 per cent of gross income are from financial services businesses, the HFC claims. Other than this, it has foreign ownership of 56 per cent against the RBI limit of 74 per cent.
Besides, the proposed amalgamated entity will also meet all parameters, including minimum voting equity capital requirements and shareholding pattern, corporate governance, prudential and exposure norms, it said.
Analysts say the Indiabulls entity’s large exposure to real estate should not be concerning.
While 2013 RBI guidelines talked about aversion to large companies and sensitive sectors like real estate and brokerages, the updated 2016 guidelines had no such mention.
Edelweiss wondered whether the deal measures up to the regulatory rigour RBI is known for. “While the deal makes the compliance cut-off and is within the purview of the policy framework, similar transactions in the past indicate an element of subjectivity in handing out bank licences by RBI,” the brokerage said.
Indiabulls Housing says the capital adequacy ratio of amalgamated entity would be 20.6 per cent against the regulatory requirement of 10.87 per cent, with tier 1 requirement of 14.4 per cent against 8.87 per cent that the norms demand.
Indiabulls MD Gagan Banga told ETNOW on Friday that the management has spoken at various levels at RBI and got some sense of comfort informally. “We have done our checking of the boxes and we are confident that this deal will go through,” he said.
At the time of writing this report, shares of Indiabulls Housing traded 0.48 per cent higher at Rs 907.50.