IHFL-LVB merger: RBI seeks 'no objection' from 12 agencies, regulators

The proposed merger of Indiabulls Housing Finance (IHFL) and Lakshmi Vilas Bank (LVB) may face hurdles in getting fit and proper status from the Reserve Bank of India (RBI) as many of the law enforcement agencies and regulators are yet to tick on “no objection”, citing “pending investigations” against the promoters of the housing finance firm.

Sources say that a fit and proper tag is the key parameter in getting approval to become a bank as a lot of public money is involved. And this status largely depends on the reviews and clearances the banking regulator receives from law enforcement agencies.

A month ago, the RBI had sought feedback and clearance from at least a dozen federal agencies, ministries and even regulators including the Enforcement Directorate (ED), income-tax department, Central Bureau of Investigation, Ministry of Corporate Affairs, Securities and Exchange Board of India (Sebi), insurance and pension regulators, and so on. Most of the central agencies have responded to the central bank and given a status report about the company, promoters and related matters, a source privy to the development said.

The tax department in its response said it was investigating the 1.1 million documents leaked from Panama-headquartered law firm Mossack Fonseca, where Indiabulls Real Estate promoter Sameer Gehlaut’s name appeared. The tax department is probing overseas investments carried out by Gehlaut and his family trusts. The matter is still pending.

More than 700 Indian names, including those of politicians, corporate executives, and celebrities, figured in the leaked ‘Paradise Papers’, detailing business dealings of the world’s most powerful people and companies in offshore tax havens.

Further, the tax department has also given a status report of another case related to undisclosed income at Indiabulls Real Estate, detected during a probe by the department initiated in 2016. The matter has been settled recently by the tax settlement commission after the company has been charged interest on the tax liability.

The ED, too, is probing Indiabulls promoter’s offshore entities and the remittances in connection with Panama leaks under Foreign Exchange Management Act (Fema). 

“Typically, the regulator concerned, who decides the fit and proper status, asks for feedback and no objection from the central agencies. In all such cases, we gather information from across the branches and provide the replies within the given timeline,” said an ED source aware of the RBI query on the matter.

The market regulator, too, is learnt to have submitted its response, citing that the enquiry is yet to be completed in the related matter, said another person privy to the development, refusing to divulge further details. Sebi is investigating insider-trading charges in Indiabulls Ventures.

According to the RBI rules for on-tap bank licences for universal banks, promoter/promoting entity and even promoter group should have a past record of sound financials, credentials, and integrity, and have at least 10 years of successful track record.

IHFL had applied for a universal bank licence when the central bank invited applications in 2013, but it had failed to secure one.

To ensure that the housing finance firm will comply with all regulatory provisions, the Indiabulls group had reportedly assured the central bank that Gehlaut will not remain chairman of the merged entity and even the shareholding by the promoter group would be cut down below 10 per cent after the merger.

Meanwhile, Delhi High Court also accepted the public interest litigation (PIL) filed against the housing finance company for alleged round tripping of funds by IHFL and suggested to form a special investigation team to probe alleged irregularities. The matter will be now heard on December 15.