Indiabulls Housing Finance (IHFL) fell 34 percent on Monday as concerns emerged over its merger with Lakshmi Vilas Bank after the Reserve Bank of India (RBI) placed the latter under prompt corrective action (PCA) due to high non-performing assets, insufficient capital, high leverage, and a negative return on assets for two consecutive years.
Additionally, the Delhi High Court accepting a public interest litigation (PIL) against Indiabulls came as another blow to the stock. The PIL alleges round-tripping of funds by IHFL. IHFL has argued strongly against the PIL.
Although the stock recovered on Tuesday, ending over 4.5 percent higher, concerns remain among investors with regards to the latest developments.
According to global brokerage Macquarie, if the company continues to face headwinds from negative sentiment, it may potentially face challenges raising fresh funds.
The brokerage compiled the exposure of top banks to IHFL, its 100 percent subsidiary Indiabulls Commercial Credit (ICCL) and Indiabulls Consumer Finance (ICFL) based on publicly available data.
It found that Yes Bank, Bank of Baroda and IndusInd Bank are the most exposed to the group (10-22 percent of net worth), whereas HDFC Bank and Kotak Bank are safer (0.5-1 percent of net worth). ICICI Bank has no exposure to the group.
The brokerage reiterated ICICI Bank and HDFC Bank as its picks in financials. In troubled times, stick to quality, the brokerage suggested.
While some of the exposures, as mentioned in the chart below, are as of December 2018, most are fairly recent (May 2019).
"Nonetheless, we must acknowledge that there may be natural repayments, sell downs, or loan cancellations against securitised assets/deposits maintained with the banks, and the numbers presented below may not be completely accurate. The purpose of this analysis is to present investors with an indicative list of banks’ exposures," Macquarie said in its report.
Macquarie believes that a large part of the loans outstanding for IndusInd Bank and HDFC Bank may already be repaid/withdrawn. IndusInd Bank's press release also maintained that their exposure to the housing finance group is only 0.35 percent of loans.
Ravneet Gill, managing director and CEO of Yes Bank, in an interview with CNBC-TV18, on Tuesday said that the lender's exposure to Indiabulls Housing Finance has gone down about 30 percent over the last few months.
“Over the last two quarters, this (Indiabulls) exposure has come down 30 percent, it is well collateralised, the account has performed exceedingly well, we have never had a day’s delay in repayments. So we do not feel concerned about that exposure right now and it’s not as large as it has made out to be," Gill clarified.
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