Why Indiabulls is ready to exit real estate business

Chennai-based Lakshmi Vilas Bank is set to merge with Indiabulls Housing Finance in a share-swap deal, RBI may not be comfortable with a bank owner having realty business under its wings.

Illustration: Dominic Xavier/Rediff.com

Indiabulls group promoters are ready to exit the real estate business in case the Reserve Bank of India (RBI) is not comfortable with a bank owner having realty business under its wings.

Ashwini Kumar Hooda, deputy managing director, Indiabulls, said, “It (real estate) is less than 10 per cent of our business and financial services form 88 per cent of assets for the group.

"The promoter (Sameer Gehalut) wants to be largely in financial services and is okay with the plan to exit real estate.”

Chennai-based Lakshmi Vilas Bank is set to merge with Indiabulls Housing Finance in a share-swap deal.

The boards of both the entities approved the merger proposal early this month and have sent it to the RBI for scrutiny and approval.

Under the proposed scheme, shareholders of Lakshmi Vilas Bank will get 14 shares of Indiabulls Housing Finance for every 100 equity shares held in the bank.

Hooda said Indiabulls Finance qualifies for bank merger without doing any of this (exiting the realty business).

RBI’s policy says that financial services business should be at least 60 per cent of a group’s business.

It is 86 per cent, to be precise, for the company.

So, the company is well within its regulations to qualify for the bank merger.

Indiabulls will sell its London property to promoters for GBP 200 million (around Rs 1,800 crore) as part of its strategy to focus on its India business and cut debt.

“We are not looking for any kind of wavier from the RBI for the merger process. There is enough capital on the balance sheet,” Hooda said.

After the merger, the capital adequacy ratio or CAR would be 20 per cent.

The company also has a track record for 10 years and meets all requirements of the ‘fit and proper’ norms of the banking regulator, he added.

The company posted a net profit of Rs 1,006 crore during the fourth quarter ended March 31, 2019, with net interest income at Rs 1,591 crore.

Photograph: PTI Photo