The Reserve Bank of India rejected the merger proposal between Lakshmi Vilas Bank and mortgage lender Indiabulls Housing Finance. If the merger had materialized, it would have been the first ever instance where a non-bank lender would have merged with a bank. The bank as well as the mortgage company have been performing poorly on the stock market after facing allegations of misconduct. It is also mentioned that RBI’s rejection of the proposed merger is major blow to Lakshmi Vilas Bank, which had been under prompt corrective action (PCA) because of huge NPAs, insufficient capital to manage risks and negative return on assets for 2 consecutive years. The bank had expected that the merger would solve part of its problems but now it will have to look at opportunities to raise capital independently. Indiabulls Housing Finance will be affected by the decision as it was seeking to diversify its asset base. The group, which is currently seeking options to exit its real estate business, has already sold several of its assets to private equity firm Blackstone.
