After months of speculations about what would have been the first incident where a non-bank lender would have merged with a bank in the country, the speculations came to an end as an announcement came out stating that the Reserve Bank of India (RBI) has issued a letter with its rejection for the merger. Motia Group, Residential Flats in Zirakpur, would like to make its readers aware of this recent update.
Indiabulls Housing Finance Limited is a mortgage lender whose proposal for a merger with Lakshmi Vilas Bank got rejected by the Reserve Bank of India (RBI) on the 9th of October, 2019.
Lakshmi Vilas Bank confirmed the development with the following statement “This is to inform that RBI in their letter dated October 09, 2019, informed that the application for voluntary amalgamation of lndiabulls Housing Finance Ltd. and lndiabulls Commercial Credit Ltd with Lakshmi Vilas Bank Ltd. cannot be approved.”
For Indiabulls and Lakshmi Vilas Bank, this rejection can cause them to face deep cuts in their stock market operations.
It is important to notice that especially after the allegations of misconduct that were brought up against them, both Lakshmi Vilas Bank and Indiabulls Housing had already been performing poorly on the stock market. Therefore, this denial of the merger would have an even harder impact on the companies.
For Lakshmi Vilas Bank, the letter of the RBI poses another fresh challenge. It had already been placed under prompt corrective action (PCA) by the central bank. The reason being a high level of non-performing assets, insufficient capital to manage risks and a negative return on assets for almost two consecutive years. It is paramount that they now look at other options to raise capital, which is difficult to achieve given the current situation of the banking sector in India.
The decision of the RBI will also negatively impact Indiabulls Housing, who was looking to diversify their asset base with the merger.
Motia Group, 4BHK Flats in Zirakpur, would brief the readers in case of further advancements in the situation.
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