Indiabulls to become SME-focused bank after successfully getting merged with Lakshmi Vilas Bank.

By Abhay Shah, Realty Quarter

Emitting for the assurance of having the regulatory approval for merger with Lakshmi Vilas Bank in two months and the combined company to be functional by next March, Indiabulls Housing Finance on Tuesday said it would become an SME-focused bank if the merger passed.

Also, promoters leaving the real estate business or at least making it debt-free should assist get the RBI going forward, IBHF deputy managing director Ashwini Hooda said over the phone. Before clearing the merger, the RBI is keen in knowing the two members strategic view, he said, adding “as part of the representation, they pledged RBI to transform the merged company into a bank focused on small and medium enterprises.”

Currently, SME loans are just over 20% of the total loan book (Indiabulls and LVB placed together) and we’re going to bring it to 40-45% in two years, he said, adding weighting on residential loans is going to be almost half to 35% from 60% now.

The promoters of Indiabulls will downsize their stake in the bank to 15.5% through a stock sale just after the merger and bring it down to below 10% within 18 months of the merger. In the previous few months since the deal was first announced, he said that the confidence in the deal has grown very high. The firms have already been approved by the Fair Trade Commission.

It can be observed that Indiabulls Housing and the old-age LVB announced previously this year a deal to combine into a share swap deal, which will provide the mortgage lender with a foothold in full-fledged banking and will assist bring the South based lender from the problems of the capital squeeze.

The large exposure of Indiabulls promoters to the real estate industry, about which RBI was openly anxious, resulted to wide-ranging doubts that a deal would cross the legislative pattern.

Hooda said that the representatives of the RBI and that of the business have frequent conversations between them. For some moment the firm has been preparing for the merger and has taken steps including additional loan clauses and a withdrawal from commercial real estate, he said.

Hooda ascribed a third of the decrease in profit in the June quarter to the merger discussions and the resulting churn real estate advances, with the rest coming from the continuing liquidity problems.

The firm recorded a 24% decrease in net income for the June quarter at Rs 802 crore earlier in the day as its revenue dropped from Rs 4,071.32 crore to Rs 3,886.12 crore.

“While we are awaiting the legislative ruling on our request for incorporation, which I hope to see in the next 45-60 days, we are focusing on incremental growth in loan book from MSME / LAP loans and residential loans,” said vice-chairman Gagan Banga.

The Indiabulls counter jumped 7.87% on the BSE at Rs 514.10 over the benchmark rallying after weeks of bloodbath 0.75%.