MUMBAI: A day after the RBI rejected merger proposal with Lakshmi Vilas BankNSE -4.87 %, Indiabulls Housing FinanceNSE 0.50 % on Thursday said the “uncertainty” about the deal is over and that the company has a stronger balance sheet after the massive cleaning up of its stable.
On Wednesday, the Reserve Bank had rejected a proposal to merge Indiabulls Housing Finance Ltd (IBHFL) with the Tamil Nadu-based troubled lender. The deal was announced in April and the no from the Mint Road came despite the plan receiving go-ahead from other regulators.
While acknowledging that the RBI’s rejection was a bit surprising, IBHFL vice-chairman and managing director Gagan Banga said however, the uncertainty over the deal has now ended helping them focus more aggressively at what is good at doing.
The uncertainty over the deal as well as legal woes have led to a run on the stock valuations of both the companies which have lost nearly half of their pre-merger-announcement value.
“My view is that, as a housing finance company, we are a lot, lot more stable and stronger now than we were six months ago.
“Our balance-sheet is much thinner and stronger with negligible debt and now our whole energies can be focused to excel more in what we have been excelling in all these years as a housing finance company,” Banga told PTI in an interview.
In recent months, IBHFL, which has been in business for nearly two decades, has been selling stakes in realty ventures–a move that has also helped it strengthen its balance sheet in the run-up to the aborted merger.
The objective behind the merger bid was to get better granularity and stability to its funding sources through the savings deposits, Banga said.
“From that perspective, yes, I am a bit disappointed,” Banga said even as he added the RBI has a stated position of not allowing NBFCs to take over banks.
“On the other hand, as we waited for the RBI nod, we made a lot of cleaning up of our own stable. We have brought down our commercial paper borrowings to under-Rs 500 crore from a high Rs 15,000 crore since April.
“We have also got rid of our entire debt of our realty arm from Rs 10,000 crore in March 2018 and from Rs 5,000 crore in March 2019 to zero now. Our exposure to commercial reality is down to Rs 7,000 crore or thereabout now,” Banga noted.
According to him, another biggest achievement in the past six months was securitisation of its balance sheet to the tune of a full Rs 25,000 crore, which is three times more than what it did in the whole of past three years.
The company has a net worth of around Rs 19,000 crore while liquidity and cash balances is well above Rs 18,000 crore as on date, he said.
Banga said the RBI rejection was a bit surprising for him as the proposal had all the backing of the government, “but at the end of the day, it is the RBI who is the master of the matters like this was also clear and a large number of people, including several quarters in the media, believing that the merger will not go through”.
Ever since the merger was announced, IBHFL has faced multiple attacks and they caused a lot of damage to the company, Banga admitted.
“There has been a lot of uncertainty over the last five-six months. Clearly, there was a divided house between those of us who were hoping that the merger would go through… there is no reason that can stop us from growing our assets under management by 20 percent on an annual basis,” he said.
IBHFL is facing a public interest litigation in the Delhi High Court which had alleged that monies loaned by Indiabulls to various companies were routed back to its promoters through other entities. The group had called such allegations baseless which were levelled with the intent of stopping the merger process.
Entering the banking space would have given IBHFL access to cheap deposits and saved it from regular crises like being faced by the shadow banks now, while the promise of capital infusion would have helped revive the fortunes of Lakshmi Vilas Bank, which was last month put under the prompt corrective action framework by the RBI.
IBHFL recorded a profit of Rs 4,091 crore in FY19.