MOSL: LAKSHMI VILAS BANK (Nit Rated)-Merger to help improve franchise value; focus on retail liabilities
Lakshmi Vilas Bank: Merger to help improve franchise value; focus on retail liabilities
Indiabulls Housing Finance (IHFL) and Lakshmi Vilas Bank (LVB) have announced amalgamation, where LVB will merge into IHFL, setting the stage for another NBFC (HFC) marriage with a bank. For LVB shareholders, for every 100 shares, they will get 14 shares of IHFL. The deal is subject to all regulatory/shareholder approvals (the RBI’s approval remains the most significant one) and is expected to be consummated in 8-9 months. LVB, a nine-decade-old bank, has struggled to make mark in a growing banking industry, lost market share and has been constrained for capital with a tier- 1 ratio of 5.6% and a total CAR of 7.7%.
We have published a detailed note on this proposed amalgamation titled published on 8th Apr’19. LVB’s management hosted a conference call today to discuss the proposed amalgamation. Key takeaways:
- Merger to help improve franchise value; expect employee union to be supportive: LVB highlighted that the merger has improved the franchise value and that the merged entity is better positioned to take advantage of the market opportunities. The bank believes that the probability of the approval from the RBI for this amalgamation is fairly high. Management believes that the Employee Union is quiet supportive and has understood the reasons behind this amalgamation. The employee union forms 60% of the total employee base.
- Retail liabilities to gain focus; aims to aggressively expand branch network: The bank will focus on deposit mobilization to fast track growth in its retail liabilities. It, thus, plans to open more branches post-merger. Thus, the credit- deposit ratio will be high in the initial years of this merger and will moderate as retail liabilities proportion improves. Also, the CASA ratio could be slightly impacted post the merger as the bank will be aggressive on term deposits.
The Lakshmi Vilas Bank Limited (the Bank) is a banking company. The Bank's segments include Treasury operations, Corporate/wholesale banking operations, Retail banking operations and Other banking operations. The Bank has a network of approximately 460 branches, including a satellite branch and approximately seven extension counters, spread across approximately 20 states and the union territory of Pondicherry. It offers products, including deposits, loans, online services, non-resident Indian (NRI) services, cards, and small and medium enterprises loans. In addition, the Bank offers wealth management services, which include life Insurance, mutual funds and portfolio management services (PMS), money transfer through branch channels, money transfer through direct remittances, investment and infrastructure bonds, permanent account number (PAN) card services, depository participant services, online trading services, new pension system (NPS) and applications supported by blocked amounts.
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