Lakshmi Vilas Bank approves merger with Indiabulls Housing Finance

Indiabulls Housing is a widely-held company with over 65 percent held by institutional investors, Banga noted. He said promoter stake, which is currently at 21.5 percent will drop to 19.5 percent after merger.

However, the promoter shareholding may change over time, LVB Parthasarathi Mukherjee said on a concall to media. As per regulatory norms, promoter shareholding in private sector banks is limited to 15 percent. Of late, Kotak Mahindra Bank has been involved in a legal tussle with the regulator over this issue.

Banga said there is no shortfall in the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) and the capital adequacy ratio (CAR) of the merged entity will be more than 20 percent.

The merged entity will have almost 800 branches and will be the 8th largest private bank with a market capitalisation of over Rs 40,000 crore, he said.

The name of the new entity has been proposed to be Indiabulls Lakshmi Vilas Bank, Mukherjee said. The bank will soon apply for regulatory approval.

For LVB, Mukherjee said that the merger brings in the much needed capital support. "In the last year and a half we've been cleaning up our books substantially. We are now at a threshold of a sharp take off. What was perhaps hindering our growth was capital. Now that we are hoping to have capital in soon, things should be actually looking up very soon," he said.

Mukherjee said that board decision was unanimous. LVB has two RBI officials on it's board currently.

The bank said the merger will create a "large and healthy diverse retail asset book, high capital base for strong growth, huge opportunity to foray into newer businesses that may increase the risk fee income base of amalgamated entity such as wealth management, asset management and securities, tap into varied but experienced management and skilled personnel to develop a successful capital accretive model."

LVB hopes to gain from IBH's network in northern and western markets of the country. For IBH, it brings access to low-cost deposits, bigger distribution franchise, expanded client base and cross-selling opportunities.

The merger is subject to approval from shareholders, Competition Commission of India (CCI), National Housing Bank (NHB) and National Company Law Tribunal (NCLT), Banga said.