InvestorQ : Why did the RBI reject the merger of Indiabulls Housing and Lakshmi Vilas Bank? The merger was supposed to add value to shareholders.
Anjana Aiyar made post

Why did the RBI reject the merger of Indiabulls Housing and Lakshmi Vilas Bank? The merger was supposed to add value to shareholders.

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Arya Nanda answered.
2 years ago
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The RBI as the banking regulator is also responsible for the stability and integrity of the financial system. It not only looks at the banking system but also whether the participants are fit and proper to operate as banks since it involves dealing with public money. While RBI has not assigned any reasons, some of the possible reasons could be as under.

· Indiabulls has been under legal investigation pertaining to round tripping of funds. While nothing has yet been proven, the RBI may be acting cautiously in this case.

· Lakshmi Vilas Bank had been embroiled in funding the Singh brothers of the Ranbaxy group via the Religare set up. That was one of the key reasons apparently why the RBI may have chosen to reject this proposal of merger.

· Lakshmi Vilas Bank has also been recently referred to the prompt corrective action (PCA) for unsustainable levels of NPAs. This could be another reason why the merger was not approved.

· The stock of Indiabulls has been too volatile in the past and the RBI may be worried that this could lead to unnecessary volatility in the banking system.

· Lastly, the merger means that Indiabulls gets a banking license due its merger with the LVB group. RBI has been very cautious about giving out banking licenses and this may look like lax regulation.

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