Bears maul Indiabulls on D-Street

The shareholders of non-bank lender Indiabulls Housing Finance Ltd (IHFL) saw their total wealth erode by ₹5,725 crore in a single day, as the company’s share price tanked 34.39% to ₹255.50 on the BSE on Monday.

The Sameer Gehlaut-led housing finance company was punished by the Street due to uncertainties on multiple fronts. The slump in IHFL’s market value was triggered by a news report that stated that the Delhi High Court had decided to examine allegations of financial irregularities, including round-tripping of borrowed funds, against the company’s promoters. A similar allegation had surfaced in June. In the present instance, the high court sought responses from Indiabulls’ promoters and other agencies including the National Housing Bank, the Securities and Exchange Board of India, the Serious Fraud Investigation Office, and the Registrar of Companies.

Later on Monday, the company’s management spoke to a business news channel and refuted these allegations.

IHFL’s problems compounded due to the Reserve Bank of India’s (RBI) decision to place Lakshmi Vilas Bank (LVB) under prompt corrective action (PCA) owing to its mounting burden of bad loans and insufficient capital. The PCA framework imposes stringent restrictions on a bank’s operations and curbs its ability to lend further, among other things.

Allegations of impropriety against the promoters of the IHFL, which has a balance sheet of ₹1.28 lakh crore; loan assets of ₹1.25 lakh crore; and a net worth of ₹17,792 crore, and the banking regulator’s decision to put LVB under the PCA framework casts a shadow over the chances of the proposed merger between the two entities going through. The proposed merger was announced in April with the rationale being that IHFL would benefit from access to low-cost deposits that a bank like LVB would bring to the table, and LVB would benefit from IHFL’s strong balance sheet. At a time when the NBFC (non-banking financial companies) sector has come under stress due to a liquidity crunch in the aftermath of the crisis at Infrastructure Leasing and Financial Services (IL&FS), non-bank lenders like IHFL are desperately looking for new sources of funds.

LVB’s share price hit the lower circuit on Monday when it declined 5% to ₹34.75 on the BSE. The bourse’s benchmark index, the S&P BSE Sensex lost 0.40% to end at 38,667.33 points on the same day. The stock price of other listed Indiabulls companies such as Indiabulls Real Estate and Indiabulls Ventures also lost ground on Monday.