Indiabulls plunges 19 per cent post-LVB deal rejection

New Delhi: Shares of Indiabulls Housing Finance (IBHFL) plunged on Thursday after the Reserve Bank of India rejected its plan to merge with Lakshmi Vilas Bank (LVB).

IBHFL tumbled 18.85 per cent to close at Rs 195 on the BSE. Intra-day, the stock plunged 22 per cent to its 52-week low of Rs 187.50. The company’s dollar bonds also slumped. LVB shares declined 5 per cent to hit lower circuit and one-year low of Rs 25.65 on the BSE.

The two companies had planned to merge their operations in a bid to increase profitability and bolster capital. Indiabulls was looking to diversify its asset base and get access to low-cost funds while Lakshmi Vilas Bank needed to raise capital.

“My sense is NBFCs will now be extra careful in approaching authorities with any kind of merger plan,” said Gaurang Shah, Senior Vice President at Geojit Financial Services.

When the merger plan was first announced, it raised speculation that other banks could become takeover targets as more NBFCs sought combinations to overhaul their business models and resolve their liquidity problems.

Indiabulls will now focus on building its retail mortgage financing business and doesn’t plan to apply for a banking permit, Managing Director Gagan Banga said.

It will fund credit growth by securitising assets and co-originating loans and has no current plans to raise capital, he told Bloomberg.

In an exchange filing after market hours on Wednesday, IBHFL said it has scheduled a board meeting for October 14, to consider the proposal of buyback of equity shares of the company

On Thursday, Chief Financial Officer of Laxmi Vilas Bank S. Sundar said, the RBI’s rejection of the merger proposal “brings an end to recent uncertanity and bank will continue to work towards raising capital as per the permitted modes in compliance with all applicable Acts and regulations.”