The merger between the Omani subsidiary of UK lender HSBC and Oman International Bank (OIB) has been put on hold due to a legal case against HSBC.

“The merger is proceeding in accordance with relevant laws and regulations. Omani law provides a creditor objection period, so that a creditor who believes they will be prejudiced by the merger can object,” says a spokesman for HSBC.

An India-based businessman has objected to the merger on grounds of an on-going five-year lawsuit with HSBC in which he is demanding RO2m ($5.2m) in compensation from the UK bank.

“Such objections are unexpected when mergers significantly increase the combined assets. In this case, the HSBC Oman and OIB merger will create the second-largest bank in Oman by asset base,” says the HSBC spokesman.

Oman’s Commerce and Industry Ministry took the step to halt the merger under the Commercial Companies Law. The merger can now only go through if the matter is settled with the businessman and HSBC or if he withdraws his claim. Otherwise it can be overruled by a court order.

The merger was announced in May and was expected to be completed by 3 June this year. HSBC has set aside $97.4m to invest in the new company in which it expects to retain a 51 per cent shareholding.

OIB has gross assets worth $3.2bn.