Lakshmi Vilas Bank Merger With Indiabulls Hanging in Balance

The Reserve Bank of India (RBI) has, on September 27, initiated Prompt Corrective Action (PCA) against Lakshmi Vilas Bank (LVB) restricting it from lending to corporates and high risk sectors. The development comes at a time the lender is awaiting the RBI’s approval for its merger with Indiabulls Housing Finance Limited (IHFL).

Meanwhile, the lender’s to be partner IHFL has now come under scanner of government bodies as ordered by the Delhi High Court. The HC order was issued based on the allegations levelled in a public interest litigation (PIL) filed by a non-government organisation, the Citizens Whistle Blowers Forum. Also, the Economic Offences Wing, Delhi on September 23 registered a First Information Report (FIR) against the bank and its directors based on “misappropriation of funds” allegations filed by Religare Finvest Limited (RFL).

Although, LVB has told its customers that the RBI’s restrictions will not affect the bank’s normal business and termed the allegations made by the RFL as “malicious attempts” to “mislead the public to cover up massive fraud indulged by their own promoters, employees and group companies,” but its investors don’t seem convinced as the lender slumped to a 52-week low on the stock market.

Also read: Indiabulls Accused of Financial Irregularities with Reliance ADAG, DLF, Others

The RBI’s restrictions are on account of high net Non Performing Assets (NPA), insufficient Capital Adequacy Ratio (CRAR), negative return on Assets (RoA) for two consecutive years and high leverage, based on the on-site inspection by the central bank.

As per the financial results published by the bank, as on March 31, 2019, the gross NPA stood at Rs 3,358.99 crore and the net NPA was reported as Rs 1,506.30 crore. The gross NPA at the end of March 2018 was reported as Rs 2,694 crore.

The bank’s net loss for the year 2018-19 amounted to Rs 894.10 crore as against a net loss of Rs 584.86 crore recorded in 2017-18.

It might seem that the poor financial performance of the bank in recent years driven by growing NPAs could have prompted the bank towards the merger. But, considering its choice of merger with Indiabulls—at a time when the housing finance company is mired in controversies and the potential allegations raised by the Religare—indicate that the bank is undergoing a deep crisis as its merger plan has now come under question.

Merger Hanging in Balance

The proposed merger between IHFL and LVB appeared to be going well until June this year when the Competition Commission of India (CCI) approved the proposed merger plan between the entities. But, with the RBI imposing restrictions on LVB and its proposed probe on IHFL, while the group companies are facing humongous losses in the share market, the merger is now hanging in balance. Also, it has been reported that in the last three months, the RBI has sent queries to the Enforcement Directorate and the Income Tax department enquiring about the record of Indiabulls group.

Indiabulls

The PIL against Indiabulls in Delhi High Court alleges that around Rs 4,600 crore was loaned by Indiabulls group to various shell companies, which in turn, routed the money though other entities controlled or owned by the promoters. On September 27, the court ordered to issue notices to different government bodies including the Ministry of Corporate Affairs (MCA), the Serious Fraud Investigation Office (SFIO) and the Registrar of Companies (RoC), the RBI, the Securities and Exchange Board of India (SEBI) and the National Housing Bank (NHB) – to investigate the allegations.

Also watch: 'Indiabulls Is a Prime Example of Crony Capitalism'

A recent report by NewsClick discusses in detail the maze of political links of Indiabulls promoter Sameer Gehlaut while highlighting a series of ‘allegations’ against the group in the last two decades.

Furthermore, according to the FIR against LVB, Malvinder and Shivinder Singh, former promoters of Religare Enterprises Ltd of which RVL is a subsidiary, in collusion with LVB, are accused of causing an unlawful loss worth Rs 791 crore to RVL.