Gagan Banga, vice-chairman and managing director of Indiabulls Housing Finance, talks about the merger proposal with Lakshmi Vilas Bank. Edited excerpts:
What prompted you to go for the merger?
In the course of the last decade or so, Indiabulls Housing has come off a certain size where we have a balance sheet in excess of ₹1.20 lakh crore.
Our capital is well over ₹18,000 crore. As important as the size, we have 70% of the shareholders as foreign and domestic investors with 56% as domestic investors.
If you look at RBI guidelines for new bank licences they have issued in 2016, we qualify on each of the parameters. There is an opportunity with a bank with a good franchise, [which] is in dire need of capital and that’s our strength.
We are well capitalised. And also, extremely liquid.
How much cash the merged entity needs to set aside for cash reserve ratio (CRR) and statutory liquidity ratio (SLR)?
The amalgamated entity will have ₹17,000 crore of cash to be put in SLR, CRR requirements. At this point in time, we are sitting on ₹27,512 crore, so well in excess.
The bank, which is today suffering from 7% capital adequacy ratio (CAR), will have almost 21% CAR making it amongst the best capitalised bank in the country. With their requirement on capital and our strength on that front, it is a marriage which will result in tremendous complementarity.
And also, it comes in a regime where there are guidelines unlike in the past where there was none.
What are the benefits for Indiabulls HFC from this deal?
From our perspective, it is a liability franchise. We have built a large balance sheet which is only four times geared. So, on equity capital, we have done extremely well. On debt capital, from a long-term perspective, we have also done well. One missing link in our armoury is the deposit franchise which is something we tremendously value.
By what time you expect the transaction to get completed and secure RBI’s approval?
For everything to go through, it is a six months’ process.
Are you concerned about the deterioration of the HFC’s return ratios post the merger?
Rupees 25,000 crore is the asset I have added in FY18. So, it is a bank which I can digest without upsetting much of my ratios. My size is such that if today I earn an return on asset of 3.5%, it may go down little bit but it will not collapse. The RoE (return on equity) will be 20% of the merged entity which will still be one the highest in the banking industry. Our shareholders should not be concerned much about the return ratios. Whatever limited interaction I had with my shareholders, they are more excited than I am.
Is LVB’s high NPA a concern?
We have to solve those NPAs. Consolidated, we will have a net NPA of 2%, which given the overall banking industry a manageable level. Within that 2%, there is a good scope for recovery. The eventual loss will not be more than 40-45%.
How much is the group’s revenues from non-financial activities?
Currently our non-financial revenues are in teens, not even 20%.