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    Indiabulls Housing, Lakshmi Vilas Bank tumble after RBI rejects their merger

    Indiabulls Housing, Lakshmi Vilas Bank tumble after RBI rejects their merger

    Indiabulls Housing, Lakshmi Vilas Bank tumble after RBI rejects their merger
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    By Pranati Deva   IST (Updated)

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    Shares of Indiabulls Housing and Lakhsmi Vilas Bank were under pressure on Thursday after the Reserve Bank of India (RBI) rejected their proposed merger.

    Shares of Indiabulls Housing and Lakshmi Vilas Bank were under pressure on Thursday after the Reserve Bank of India (RBI) rejected their proposed merger.
    Indiabulls Housing fell as much as 22 percent to its 52-week low of Rs 187.5 per share on the BSE, while Lakshmi Vilas Bank hit its 5 percent lower circuit at Rs 25.65.
    The stock of the housing finance company ended 19 percent lower at Rs 195, while LVB was down 5 percent at Rs 25.65. In comparison, the BSE Sensex settled 0.8 percent lower or 297 points lower at 37,880.
    On May 7, Lakshmi Vilas Bank had sought voluntary amalgamation with Indiabulls Housing and Indiabulls Commercial Credit. The merger, announced on April 2018, has received all necessary approvals, but the all-important nod from the RBI.
    The central bank's decision to reject the merger comes days after the RBI initiated Prompt Corrective Action (PCA) against Lakshmi Vilas Bank following high non-performing assets (NPAs), insufficient capital adequacy levels, negative Return on Assets and high leverage.
    "Now that the merger will not happen with Lakshmi Vilas bank, the uncertainty of last 5 months on the business is lifted and the company will focus on its growth of the core business of housing finance," Indiabulls said.
    It is noteworthy that Indiabulls Housing Finance has called a board meeting on October 14 to consider buy-back of equity shares.
    Dipan Mehta, member of BSE and NSE, said he is not surprised by the rejection by RBI as it would have created bad precedence. "Clearly, it is a back door way of getting a banking license and could have even created a sort of way for many of the other NBFCs to look for banking licence without going through the entire rigmarole of getting a banking license and the associated risk."
    Further, he said, "I think both companies have their own set of problems which are quite challenging at this point of time in terms of liquidity and growth."
     
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