The Reserve Bank of India (RBI) has denied approval for amalgamation of private sector lender Lakshmi Vilas Bank with Indiabulls Housing Finance (IHF) and its entirely-owned subsidiary Indiabulls Commercial Credit Limited. The lender had sought approval for the merger from the central bank on May 7, 2019.
"RBI vide their letter dated October 09, 2019, informed that the application for voluntary amalgamation of lndiabulls Housing Finance and lndiabulls Commercial Credit Limited with Lakshmi Vilas Bank Limited cannot be approved," Lakshmi Vilas Bank said in a regulatory filing on Wednesday.
The board of Lakshmi Vilas Bank had approved the merger with IndiaBulls Housing Finance last year. Since then, the bank had received all necessary regulatory approvals required for the amalgamation, but failed to get the RBI's green signal.
The merged entity would have been 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.
The RBI had placed Lakshmi Vilas Bank under Prompt Corrective Action (PCA) in September this year on account of high level of bad loans, lack of sufficient capital to manage risks and negative return on assets for two consecutive years. The action was taken on the basis of an on-site inspection under the risk-based supervision carried out for the years ended on March 31, 2019.
Under the PCA framework, which was introduced in December 2002, the RBI imposes several restrictions on a bank, from lending to the distribution of dividends, etc. The measure is usually aimed at improving the performance of the bank.
Meanwhile, RBI Governor Shaktikanta Das had said last week that placing Lakshmi Vilas Bank under the PCA framework should not be misconstrued as the apex bank having made up its mind on the lender's merger proposal with Indiabulls Housing. He also advised the all stakeholders not to draw any inferences now based on the punitive action on the Chennai-based mid-sized private sector bank.