Lakshmi Vilas Bank Ltd. and Indiabulls Housing Finance Ltd., which have agreed to merge, are facing increased scrutiny from India's central bank following fresh allegations of wrongdoings against the housing finance company's promoters and the sudden departure of the bank's CEO, The Economic Times reported Sept. 17, citing two people familiar with the matter.
The central bank told the two companies not to exchange information and banned management interaction until the merger is approved, the sources said. Meanwhile, the regulator intensified its "fit and proper" checks on the companies after a lawsuit was filed in the Delhi High Court to ask for a special probe into alleged irregularities, including diversion of funds, committed by the promoters of Indiabulls Housing Finance. The lawsuit was filed by NGO Citizens Whistle Blower Forum.
Indiabulls Housing Finance has denied the allegations.
The merger still needs to be approved by the central bank. Both companies have sent five nominations for the board of the merged entity. A person close to the bank said the central bank is likely to closely scrutinize names recommended for chairman and managing director of the merged entity.
Indiabulls Housing Finance and the central bank did not respond to the publication's requests for comment.
