The board of Lakshmi Vilas Bank has approved the private sector lender's merger with Indiabulls Housing Finance, the companies said in separate stock exchange filings on Friday. Under the scheme of amalgamation, shareholders of Lakshmi Vilas Bank will receive 0.14 equity share worth Rs 2 each of Indiabulls Housing Finance for every one share of Rs 10 each they hold. This means for every 100 shares of LVB, shareholders will get 14 shares of Indiabulls Housing Finance.
The merged entity will be "amongst the top eight private banks in India by size and profitability", with a net worth of Rs 19,472 crore, a loan book of Rs 1.23 lakh crore, and a combined workforce of 14,302 employees. Its Capital Adequacy Ratio, the ratio of a bank's capital to its risk, will be 20.6 per cent. In terms of asset quality, the new entity will have 3.5 per cent Gross NPA and 2 per cent Net NPA.
The merger still needs to go thorough the Reserve Bank of India, though. The promoters of the Indiabulls Housing Finance have exposure to the realty sector, which might not sit well with the central bank. Moreover, the non-bank lender was one of the unsuccessful applicants for universal banking licence in the last round in 2015.
The two parties, however, are positive that the merger will go through, based on recent precedents where the RBI has approved similar amalgamations.
"The merger of two organisations will unlock value through its various synergies that exist exclusively but in unison, will create a large and healthy diverse retail asset book, high capital base for strong growth, huge opportunity to foray into newer businesses that may increase the risk fee income base of amalgamated entity such as wealth management, asset management and securities, tap into varied but experienced management and skilled personnel to develop a successful capital accretive model," Lakshmi Vilas Bank said in its filing.
Indiabulls Housing Finance's access to large northern and western markets in India will work in tandem with the Lakshmi Vilas Bank's heavy presence in the southern India to create a pan-nation presence. With the merger, Indiabulls Housing Finance will get access to stable low-cost funding in the form of public deposits and expanded distribution franchise, the bank cited as one of the rationale behind the amalgamation.
"Cross-sell opportunities created through the merger will help the transferee company grow loan book through a suite of consumer loan products, and give it access to new fee generation opportunities," the bank further said.