Private sector lender Lakshmi Vilas Bank (LVB) on Thursday said the Reserve Bank of India’s decision to reject the merger proposal with Indiabulls Housing Finance ends a period of uncertainty and it would continue to work to raise capital.

Read more:RBI shoots down Indiabulls-LVB merger

Acknowledging the decision of RBI on the proposed amalgamation, LVB in a regulatory filing said, “This brings an end to recent uncertainty and the bank will continue to work towards raising capital as per the permitted modes in compliance with all applicable Acts and Regulations.”

LVB, which is under prompt corrective action framework by RBI, is already planning to raise about ₹1,000 crore this fiscal through equity mode and ₹500 crore by Tier I / Tier II bonds. As on June 30, 2019, its capital adequacy ratio and Tier I CAR stood at 6.46 per cent and 4.46 per cent as against regulatory requirement of 10.875 per cent and 9 per cent.

Related news:Lakshmi Vilas Bank aims to raise ₹700-1,000 cr in FY20

Faced with bad loans, it has reported net losses in the last two fiscal years and had a net loss at ₹237 crore for the quarter ended June 30, 2019.

Analysts said the RBI’s decision not to approve the merger will impact both the companies. Scrip of LVB and Indiabulls Housing Finance touched 52-week low on BSE on Thursday. LVB shares lost 5 per cent to ₹25.65 apiece while Indiabulls Housing Finance scrip was nearly 19 per cent down at ₹195 apiece on BSE.

Also read:Indiabulls Housing Fin, Lakshmi Vilas Bank hit 52-week lows

“Both these companies were looking forward to the merger and RBI's rejection of the deal puts a full stop to these aspirations. LVB is under PCA norms with a weak asset quality profile, and the merger would have strengthened it's shaky capital position. Raising capital independently could be a challenge for the bank. For Indiabulls Housing Finance, a banking licence and access to public deposits would have aided their funding profile amidst high risk aversion with banks,” said Mona Khetan, banking analyst, Reliance Securities.

Edelweiss Securities in a note said the likelihood of a positive outcome was bleak given the way events were unfolding-litigation and investigation initiated against IHFL and LVB put under PCA framework recently by the RBI. “With this, IHFL’s banking licence aspiration is likely to come to halt,” it said.

Indiabulls Housing Finance has been looking to step into the banking sector for some time. It had applied for a banking license in 2013 as well. It had also bought 40 per cent stake in British lender OakNorth Bank in 2015.

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