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After charges of wrongdoing at HFC, exit of bank CEO: RBI raises scrutiny on LVB and Indiabulls HF

RBI tells cos not to exchange info, bars management interaction pending approval of merger.

, ET Bureau|
Updated: Sep 17, 2019, 10.59 AM IST
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Indiabulls has described the PIL as “malicious” and “malafide” with the intention of scuttling the planned merger.
MUMBAI: The Reserve Bank of India (RBI) has intensified its “fit and proper” checks on the managements of Lakshmi Vilas Bank (LVB) and Indiabulls Housing Finance (IHF), which plan to merge, following fresh accusations of wrongdoing and the sudden exit of the bank’s CEO. It has also told the companies not to exchange information and barred management interaction pending approval, two people familiar with the matter said.

The heightened scrutiny follows a public interest litigation (PIL) in the Delhi High Court seeking a special investigation into alleged irregularities, diversion of funds and other violations said to have been committed by the promoters of IHF.

The PIL filed by NGO Citizens Whistle Blower Forum alleges that the Indiabulls promoters have been advancing dubious loans to companies owned by large corporate groups. The latter route a part of these funds back to the accounts of companies owned by the promoters of Indiabulls.

Indiabulls has described the PIL as “malicious” and “malafide” with the intention of scuttling the planned merger. Senior advocate Mukul Rohatgi, appearing for Indiabulls, said at a hearing last week that the petition had been copied from an earlier plea filed by one Abhay Yadav in the Supreme Court. That had subsequently been withdrawn and the facts stated in it were also said to be wrong with Yadav issuing an apology. The next hearing in the current case will be held on September 27.

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“This PIL is now sub judice, so it is only fair that it is decided by the court,” said one of the people cited earlier. “The RBI is hence in no hurry to make a decision on this case.”

Deal has CCI Nod
“There are also enquiries being done by agencies like the Enforcement Directorate and income tax, which the RBI will access. Only after they receive all this information will a considered decision be made,” the person said.

An RBI spokesperson didn’t respond to queries and neither did Indiabulls.

The two sides announced that LVB will be acquired by IHF subject to regulatory approval on April 5. LVB shareholders were to get 0.14 equity share of the merged company for each held in the bank. However, on May 4, the contours of the deal changed. The two companies said that IHF and its subsidiary Indiabulls Commercial Credit Ltd (ICC) will be merged into Lakshmi Vilas Bank.

Just after the deal was announced in April, in an unprecedented clarification on its website, the RBI said that the presence of additional directors nominated by it on the LVB board didn’t imply central bank approval of the merger proposal.

LVB CEO P Mukherjee, who has been at the helm of the bank since 2015, quit late last month citing personal reasons. He hadn’t completed a year of the two-year extension the RBI gave him in January 2019.

Both entities had sent five nominations for the board of the merged entity. They include Indiabulls chairman Sameer Gehlaut, vice chairman Gagan Banga and executive director Ajit Mittal. From the LVB side, the names include KR Pradeep, who is the largest shareholder in the promoter group of the bank with a 2.01% stake, and P Mukherjee, who has since resigned.

The deal has got the approval of CCI but the National Housing Bank and the RBI are yet to take a call. “We have no new information from the RBI. Whatever we have got is in the public domain,” said LVB CFO S Sundar.

“As part of the diligence process, there are regular RBI, NHB inspections and RBI’s inspection is likely to end by the end of next week,” said one person close to Indiabulls. “RBI has looked into the credentials of incoming promoters between May and July. RBI will now look at the resultant capital position, asset classes and final business plan. It will take four months after issuing in-principle licence to the final one.”

Another person close to LVB said that the RBI is likely to scrutinise names recommended for chairman and MD of the merged entity more closely.

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