In an all-out bid to convince the Reserve Bank of India (RBI), Indiabulls founder Sameer Gehlaut has promised the regulator that he will relinquish all control and rights, have no say in the management, and bring the promoter group shareholding below 10% in the proposed bank to be formed after the merger of IndiabullsHousing Finance with Lakshmi Vilas Bank (LVB).
With banks and mutual funds unwilling to lend to most non-banking finance companies (NBFCs) after the collapse of Infrastructure Leasing & Financial Services (IL&FS) and default by Dewan Housing Finance Corporation Ltd (DHFL), Indiabulls Housing had moved RBI to transform itself into a bank by merging with LVB.
‘RBI may Take Its Time’
RBI which is typically slow and selective in issuing new banking licence, letting a large companies convert into banks, and even permitting corporates and individuals pick up more than 5% in a private bank is yet to approve the merger proposal.
Probably trying to allay regulatory concerns, Gehlaut in a letter dated July 29 had assured RBI that the merged entity will not be identified with any group, a source told ET. According to the letter, all steps signifying a cessation of ‘control’ as per applicable laws and judicial precedents would be taken, said the person.
Earlier, Indiabulls founder Gehlaut had committed that his stake (along with all corporate promoters acting in concert with him) would be below 15% in the entity that will come into existence after the merger with Chennai-headquartered old private sector lender, LVB.
The promoters currently hold 21.5% in Indiabulls Housing, which corresponds to 19.5% in the proposed bank. However, Gehlaut in the July 29 letter told the central bank that “after much reflection” he has decided that after receiving regulatory approval, promoters’ stake in the bank would be cut to less than 10%.
“In the present environment, the pressure on Indiabulls is almost palpable. But, RBI will take its time… because once this merger goes through, some of the other small, capital-starved private banks and NBFCs will explore merger,” said a senior banker.
Gehlaut also said that he and other corporate promoters of Indiabulls Housing Finance would ‘declassify’ themselves from being the ‘promoter group’ in the merged bank. Under Securities Exchange Board of India (Sebi) rules, a combined promoters’ holding of less than 10% will fulfil the conditions of ‘depromoterisation’ in the new entity. Once ‘declassified’ as promoters, such shareholders will neither have special rights that promoters enjoy under a company’s articles of association nor will they be required to make disclosures under the insider trading rules of the capital market regulator.
Simultaneously, Gehlaut said the promoter group would give up rights to appoint majority of directors or control the management or policy decisions. Since he would hold no executive position, Gehlaut has spelt out that he would have no operational control over day-to-day affairs and would not be in a position to directly or indirectly influence the management and business of the new entity.
STAKE DILUTED IN REALTY ARM
He is learnt to have said that “the amalgamated bank will be completely insulated from Sameer Gehlaut group” where he will continue as a promoter.
Indiabulls has been trying to distance itself from its real business given the RBI’s customary reluctance to allow houses associated with realty hold any meaningful stake in banks. The group has diluted its stake in the realty company Indiabulls Real Estate by offloading a part of its holding to Embassy Property Developments, a company it has been dealing with for years.
Indiabulls’ plan to sell additional stake to Embassy has fallen through, thanks to volatility in the stock market. According to media reports, Indiabulls Real Estate is now in talks with private equity house Blackstone to dilute its interests in commercial properties.
One of India’s largest home finance companies, Indiabulls Housing’s asset size is more than three times that of LVB, which was founded in in 1926 by a group of businessmen in Karur to serve the financial needs of people in and around the region.