Domestic investors along with influential promoters such as Sameer Gehlaut, Hemant Kanoria, Rajeev Chandrasekhar and Nimesh Kampani among others are expected to pay a crucial role in the success of the rights issue of the struggling Lakshmi Vilas Bank (LVB).
Promoters currently hold a meagre 9 per cent in the bank whereas the rest is with the public. In September last month, LVB shareholders did a coup of sorts by ousting seven directors of the bank which included the MD & CEO. Sources suggest large investors acted together to vote against the proposals.
While the proposal of the Clix Group for a merger with the bank is pending with the Reserve Bank of India, the board of the bank is meeting tomorrow to take a call on the rights issue.
Currently, day-to-day operations are managed by a committee of directors. The bank's shareholders are not too happy with the past management as the 94-year old bank has been a wealth destroyer. It has been making losses for the last three years. Gross NPAs have jumped to 25 per cent, meaning a fourth of the loan of the bank under default.
The bank already has shareholders' approval for Rs 1,000 crore capital. As per current estimates, it needs a minimum of Rs 1,500 crore for risk-based assets. The stress post-Covid will require further capital. Similarly, the bank will need capital for future growth.
Domestic investors with big influential names hold 34 per cent in the bank based on the June 2020 shareholding pattern. Sameer Gehlaut, through Indiabulls Housing Finance, has the highest stake of 4.99 per cent. In fact, Gehlaut's housing finance company did make an attempt earlier to merge with the struggling bank, but the RBI was not very keen. Sunil and Hemant Kanoria's SREI Infrastructure Finance holds 3.34 per cent, while Nimesh Kampani through JM Financial Services holds 3.38 per cent in the bank. Chandrasekhar's Jupiter Capital has a 1.08 per cent stake in the bank. This financial services firm of Chandrasekhar has investments in media, technology and real estate.
Insurance companies led by LIC, Aditya Birla Sun Life and DHFL Pramercia Life Insurance hold close to 5 per cent and banks and institution have another 2.05 per cent. These companies have the capacity to infuse funds into the bank.
It is not known whether the merger proposal and the rights offer decision are independent of each other. In June, the Clix Group entered the merger fray. RBI's first task is to take the bank out from the weak bank tag. The bank is under RBI's prompt corrective action plan (PCA) since September 2019 with restrictive lending. RBI will look for a stronger player to provide much needed capital and management bandwidth to the struggling bank.
In the last two mergers, the RBI had LIC as majority partner for failed IDBI Bank. Similarly, RBI stitched together an alliance of SBI and large private banks to save Yes Bank.