Shares of Indiabulls Housing Finance fell over 9 percent on Friday after the Reserve Bank of India (RBI) rejected their proposed merger with Lakshmi Vilas Bank. The stock has tumbled over 26 percent since the announcement yesterday.

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The stock of the NBFC shed as much as 9.4 percent to reach its 52-week low of Rs 176.60 per share on BSE in intraday today. At 11:45 AM, the stock was trading 7 percent lower at Rs 181.20 as compared to a 0.07 percent or 26 points rise in BSE Sensex at 37,907.

Lakshmi Vilas Bank was also stuck on its 5 percent lower circuit for the second day in a row at Rs 24.40 per share on BSE.

On May 7, Lakshmi Vilas Bank had sought voluntary amalgamation with Indiabulls Housing and Indiabulls Commercial Credit. The merger, announced on April 2018, has received all necessary approvals, but the all-important nod from the RBI.

Also Read: Indiabulls Housing Finance: Amalgamation with Lakshmi Vilas Bank a closed chapter for us

The central bank's decision to reject the merger comes days after the RBI initiated Prompt Corrective Action (PCA) against Lakshmi Vilas Bank following high non-performing assets (NPAs), insufficient capital adequacy levels, negative Return on Assets and high leverage.

According to Macquarie, the rejection further jeopardises the funding situation for Indiabulls Housing. "We don’t think organisations can survive by only selling loans. While the cash position of Rs 20,000 crore for IHFL doesn’t post any big liquidity or solvency risk in the near term," it added in a report.

The brokerage believes this is the right move. If the RBI had given the approval, several other NBFCs would have lined up to acquire banking licenses through this route and that definitely is not a palatable outcome that the central bank would have desired, it noted.

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