Lakshmi Vilas Bank to merge with Indiabulls Housing

Chennai-based Lakshmi Vilas Bank is set to merge with Indiabulls Housing Finance in a share-swap deal, reflecting the trend of consolidation in the financial services sector. The boards of both entities have approved the merger proposal.

The shareholders of Lakshmi Vilas Bank will get 14 shares of Indiabulls Housing Finance for every 100 equity shares held in the bank, said the bank in a filing to the stock exchanges. At Friday's closing price, IBHF will pay a 36 per cent premium to the LVB shareholders. The deal would lead to 8 per cent equity dilution (on the basis of December 2018 figures) for the housing finance major.

This would be the second time that a non-banking financial company has acquired a bank since Capital First acquired IDFC Bank to form IDFC First Bank last year. While IBHF had applied for a banking licence, the Reserve Bank of India granted licences to only two entities in 2014.

The amalgamated entity would have a net worth of Rs.19,472 crore and a loan book of Rs.1.23 trillion as of December 2018. The merged entity’s capital adequacy ratio would be 20.6 per cent.
IBHF's market capitalisation is 13 times that of LVB. The merger will bring access to the bank’s low-cost deposit franchise for IBHF, which has largely relied upon wholesale finance to fund lending operations. LVB has been in dire financial circumstances due to mounting non-performing assets, and the central bank has put two nominees on its board for close supervision. The bank has also been in the market to raise capital. IBHF’s strong capital adequacy will help the bank overcome these problems.

However, it is important that LVB, with its weak financials, does not slip into the RBI's prompt corrective action framework, which could be adverse for the merger.

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