RBI rejects merger of Indiabulls Housing Finance with Lakshmi Vilas Bank

The Lakshmi Vilas Bank (LVB) on Wednesday informed in a stock exchange filing that "This is to inform that RBI vide their letter dated October 09, 2019, informed that the application for voluntary amalgamation of Indiabulls Housing Finance Ltd and Indiabulls Commercial Credit Ltd with Lakshmi Vilas Bank Ltd cannot be approved."

The central bank did not cite any reasons behind the rejection of the proposed merger.

In April, the private sector bank had announced that its board had approved a merger with Indiabulls Housing Finance Ltd in an all stock deal. The bank had applied for an approval from the Reserve Bank of India (RBI) on 7 May, 2019.

The merger was important for Indiabulls Housing Finance as the mortgage financier is mulling ways to diversify its asset base amid the liquidity crisis in the shadow banking sector. Meanwhile, Lakshmi Vilas Bank was under RBI’s prompt corrective action (PCA) and hence, was required to raise capital to boost its capital.

The news is likely to have an adverse impact on the stocks of both the private sector bank and the mortgage financier. It must be noted that both LVB and Indiabulls Housing Finance have fallen to multi-year lows post allegations of misconduct.

On Wednesday, shares of Indiabulls Housing Finance closed in BSE at Rs.240.30 as compared to the previous close of Rs. 234.80. The stock hit an intraday high of Rs. 246.80 and intraday low of 232.20.

Shares of Lakshmi Vilas Bank closed in BSE at Rs. 27.00 as compared to the previous close of Rs. 28.40. The stock hit an intraday high of Rs. 27.00 and intraday low of 27.00.