The boards of Lakshmi Vilas Bank(LVB) and Indiabulls Housing Finance has approved the merger between the two to create what would be known as the ‘Indiabulls Lakshmi Vilas Bank’.
The merger is subject to the approval of the Reserve Bank of India (RBI),as well as the grant of other regulatory approvals.The merged entity will have a net worth of Rs19,500 crore and a capital adequacy ratio of 20.6%.
Further,the merger will give much needed capital for Lakshmi Vilas Bank(LVB) which is reeling under rising Non performing assets(NPAs), while the deal offers a lucrative banking licence to Indiabulls.
The merger will also increase the geographic presence of the merged entity as Indiabulls has a strong presence in northern and western Indian markets while LVB has a strong presence in the South.
Capital Adequacy Ratio(CAR) is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities. It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.
Non-Performing Assets(NPA) are loans or advances that are in default or are in arrears on scheduled payments of principal or interest,usually for a period of 90 days.Before the period of 90 days,they are called Stressed Assets.