After two failed attempts at a merger, the Chennai-headquartered Lakshmi Vilas Bank has finally got a new acquirer in DBS Bank. The troubled lender with 566 branches saw its capital adequacy ratio fall to 0.17 per cent in June 2020 as against the minimum 9 per cent. The bank had Rs 13,827 crore in outstanding loans and deposits worth Rs 21,443 crore at the end of financial year 2019-20.
Till a week ago, Clix Group was the front-runner for a merger as its proposal was under discussion with the RBI and the board. Clix Group had entered the merger fray in June this year. The earlier efforts of a voluntary amalgamation of Indiabulls Housing Finance and Indiabulls Commercial Credit with the private sector bank also failed as the RBI was not in favour of it.
Final call for the merger in the banking sector is always with the RBI as the regulator wants a stronger entity to step in. In one of the last two mergers, the RBI had LIC as majority partner for failed IDBI Bank. Similarly, the central bank had brought in an alliance of SBI and large private banks to save YES Bank.
The Clix Group was actually on a fundraising spree in the last few months. It had also converted its housing arm from a private limited firm to a limited one, which opens up more funding options for the company.
The Clix Group proposal had included merger of Clix Capital Services Ltd, Clix Finance India and Clix Housing Finance with the struggling bank which has a market cap of over Rs 600 crore. The bank earned revenue of Rs 2,200 crore in 2019-20.
The big issue for previous partner was also the adjustment of fixed deposit against the loan. Three years ago, the bank had adjusted deposits of Rs 794 crore of Religare group companies against the loans extended by the bank to the same group. This issue of adjusting deposit is already contested by Religare Finvest.
While the bank claims it to be legally tenable, the RBI had advised the bank to make provisions to cover the potential losses. The case is already sub judice.
The new acquirer DBS Bank will have to bring in additional capital to absorb the future loan losses. Lakshmi Vilas Bank is in urgent need of capital because of the losses for the last three years. The bank's losses jumped from Rs 585 crore in 2017-18 to Rs 836 crore in 2019-20. The bank's gross NPAs have touched 25.39 per cent in the same period.
Shareholders were not too happy with the management of the 94-year-old private sector bank because of the wealth destruction and losses in the books. They recently ousted the bank's seven directors, including the RBI-appointed MD and CEO. Currently, the day-to-day operations of the bank were being run by a committee of directors consisting of three independent directors. The committee had all the powers of a MD and CEO for the time being.
The bank's high profile investors include names like Sameer Gehlaut, Hemant Kanoria, Rajeev Chandrasekhar, Nimesh Kampani among others. The domestic investors with big influential names hold 34 per cent in the bank, as seen in the shareholding pattern at the end of June 2020.
The promoters currently hold a meagre 9 per cent in Lakshmi Vilas Bank, while the entire balance is with public shareholders.
The first big task before the RBI is to take the bank out of the moratorium. The old private sector bank was under the RBI's prompt corrective action (PCA) framework since September last year.