Shares of Chennai-based Lakshmi Vilas Bank were locked in 5% upper circuit of ?97.35 in noon trade today on BSE, the third straight day when shares of the private lender hit the 5% upper circuit. On Friday, Lakshmi Vilas Bank said that its board has approved a merger with mortgage financier Indiabulls Housing Finance Ltd in an all-stock deal. The merged entity, to be called Indiabulls Lakshmi Vilas Bank, will be among the top eight private banks in India by size and profitability, Indiabulls Housing Finance said in a filing with stock exchanges.
The share-swap ratio for the merger has been fixed at 1:0.14, which means that for every 100 shares of Lakshmi Vilas Bank held by shareholders, they will be entitled to receive 14 shares of Indiabulls Housing Finance, according to the exchange filing.
Based on the share-swap ratio, Indiabulls Housing Finance has paid a premium of 36% to Lakshmi Vilas Bank’s shareholders (as per the closing price of 5th April 2019), says domestic brokerage Motilal Oswal. This is despite a significant run-up in the price of Lakshmi Vilas Bank in the run-up to this merger announcement.
Motilal Oswal believes that the merger is a “win-win deal for both Indiabulls Housing Finance and Lakshmi Vilas Bank” but RBI’s approval remains a key factor.
“Indiabulls Housing Finance gets access to banking platform, essentially the liability franchisee and provides longevity to its lending business on a consistent basis. Lakshmi Vilas Bank, though a nine-decade old bank, has struggled to make mark in a growing banking industry, lost market share and has been constrained for capital. The amalgamated bank will also benefit from the efficiency of Indiabulls Housing Finance, which operates on a very low cost/income ratio of 12.7% (as on FY18) backed by a strong technology architecture,” the brokerage said in a note.
The merger is however subject to regulatory approval. The RBI in a statement on Saturday said that the “merger announcement does not have any approval of RBI at this stage.”
RBI also said that “it has been reported in a section of the media that the presence of two nominee directors of the RBI on the Board of Lakshmi Vilas Bank implies RBI’s indirect approval of the proposal.”
The central bank also said “presence of additional directors nominated by the RBI on the Board of Lakshmi Vilas Bank does not imply any approval of the RBI of the merger proposal.”
The proposals, as and when received from the entities, will be examined by the RBI as per extant regulatory guidelines/directions, the central bank said.
Indiabulls Housing Finance shares were down 0.75% at ?896.45 in noon trade today.