Private lender Lakshmi Vilas Bank on Friday said its board has approved a scheme of amalgamation with lndiabulls Housing Finance.

In a share swap deal, Lakshmi Vilas Bank (LVB) shareholders will get 14 shares of Indiabulls Housing Finance for 100 held.

Tamil Nadu-based LVB has total assets of Rs 40,429 crore and capital and reserve of Rs 2,328 crore as March 31, 2018, Indiabulls Housing Finance had total assets of Rs 1,31,903 crore and consolidated net worth of Rs 17,792 crore at the same date.

The net worth of amalgamated entity will be Rs 19,472 crore for the nine month period ended December 31, 2018 with 14,302 employes and a loan book of Rs 1,23,393 crore.

Amalgamated return on equity and assets stood at 19.20 per cent and 2.0 per cent, respectively. Nine-month operating profit and profit of the amalgamated entity stood at Rs4,630 crore and Rs 2,455 crore, respectively. Gross non-performing loans and net nonperforming loans stood at 3.50 per cent and 2 per cent, respectively.

LVB believes that the merger of such two organisations will unlock value through itsvarious synergies that exist exclusively but in unison, will create a large and healthy diverse retail asset book, high capital base for strong growth, huge opportunity to foray into newer businesses that may increase the risk fee income base of amalgamated entitysuch as wealth management, asset management and securities, tap into varied but experienced management and skilled personnel to develop a successful capital accretive model.

Rationale behind merger

Access to low-cost deposits: lndiabulls Housing Finance will get access to stable low-cost funding in the form of public deposits and expanded distribution franchise.

Geographical diversification: Complementary branch network will enable scaling up of business for both the entities on the back of lndiabulls Housing’s strong presence in North and Western India and the LVB’s strong presence in South India.

Expanded client-base and cross-selling opportunities: Cross-sell opportunities created through the merger will help lndiabulls Housing grow loan book through a suite of consumer loan products, and give it access to new fee generation opportunities.

Pooling and optimal utilisation of resources, creating better synergies and greater economies of scale.

“Third largest NBFC merging with a bank indicates that September liquidity issue still persists and NBFCs see a better future staying on course in form of banks,” said Sameer Kalra, Founder at Target Investing.

According to Kalra both the entities have their own major concerns.

For Indiabulls, it is the liquidity, as options of raising funds turn costly and lesser in availability. For LVB it is asset quality and scope of loan growth, which needs better management.

“We have ‘sell’ ratings on both the companies, and we see this merger as slightly positive, as Indiabulls will get access to low-cost funds. However, asset quality will be a major issue on the consolidated accounts,” Kalra said.

Shares of LVB closed 4.98 per cent higher at Rs 92.75 on Friday, while Indiabulls Housing Finance settled 0.53 per cent up at Rs 903.15. 

Source : http://www.ecoti.in/nKAoxY53