RBI’s curb on LVB may impact stock; Indiabulls Housing could face pressure, too

Over the last couple of years, the bank has steadily seen erosion in its market value.

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LVB stock has fallen 63 per cent from a 52-week high of Rs 97.35 on April 8.
Shares of Lakshmi Vilas Bank (LVB) and Indiabulls Housing Finance may come under pressure after Mint Road last week imposed operational curbs on the private-sector lender, restrictions that also put a question mark on the proposed merger of the two businesses.

The Reserve Bank of India’s (RBI) decision to bring the bank within the ambit of the Prompt Corrective Action (PCA) framework sets ceilings and limits on big-ticket and high-risk lending. The proposed merger of LVB and Indiabulls Housing Finance still awaits the central bank’s approval.

A section of investors, however, said the action on the bank would provide Indiabulls bargaining power for achieving better merger ratios. The capital-starved bank’s proposed merger with Indiabulls Housing was earlier billed as a win-win for both parties — the non-banking finance company gets access to a bank, while the stretched lender gets the backing of a well-capitalised home financier.


“There is a strong chance now that their merger may not happen until the picture gets clear. There can be a gap-down opening on Monday for both the stocks,” said Sanjeev Jain, vicepresident (equity research) at Sunness Capital India Pvt Ltd. “And pressure persists on both the stocks until the picture clear,” said Jain.

The shares of the private sector lender closed at Rs 36.55 apiece on Friday while the announcement came after the markets hour. The stock has fallen 63 per cent from a 52-week high of Rs 97.35 on April 8.

Over the last couple of years, the bank has steadily seen erosion in its market value, with the stock falling from a high of Rs 189 on July 21, 2017, reflecting the bank’s asset quality troubles and consecutive quarterly losses.
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Shares of Indiabulls Housing closed at Rs 389 on BSE on Friday, off 61 per cent its 52-week high of Rs 1,004.

In a filing to stock exchanges on Friday, the bank said the regulatory action was "on account of high net NPAs, insufficient capital to risk weighted assets ratio (CRAR) and common equity tier-1 (CET 1), negative return on assets for two consecutive years and high leverage.”

The move came even as the Delhi Police's Economic Offences Wing registered a complaint against the Board of LVB, alleging cheating and misappropriation of funds.

“There are no restrictions on operations by depositors. Bank can also undertake lending activities to all segments except corporates and other stressed and high-risk sectors,” the bank’s chief financial officer S Sundar said in a note.
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