Less than a month after striking a deal with Clix Capital for fund infusion, Lakshmi Vilas Bank (LVB) chief S Sundar has said the lender is in talks with other investors to mop up Rs 1,000 crore additional capital. The nearly 100-year-old LVB is looking at ways to bolster its capital adequacy ratio and the merger deal with Aion Capital-backed non-banking financial company Clix Capital would bring in Rs 1,900 crore for the bank.
The bank needs capital to grow and make profit, and "we have got Clix as they have expressed their interest to merge with the bank. The advantage is that they are capital surplus and we are capital deficit," LVB, MD and CEO S Sundar told PTI in an interview. "We need capital, they have surplus capital. So I find it is a very good alignment in the sense that they have about Rs 1,900 crore of capital (surplus)," he said.
While noting that the merger with Clix would give enough strength to do business, Sundar said the bank was in need of additional funds. Explaining the deal with the Gurgaon-based investor, Sundar said Clix is bringing about Rs 4,500-4,600 crore as assets, of which Rs 1,900 crore is shareholders' fund.
"I find this is a very good alignment in the sense that they have about Rs 1,900 crore of capital and their assets are about Rs 4,500 crore-Rs 4,600 crore or so. They may need capital allocation of 10 per cent on it, (which means) about Rs 500 crore. So, there is a surplus capital of Rs 1,400 crore. Thus, on merger, it should come to the bank.
"After allocating Rs 500 crore capital for Clix's assets, the bank will be left with a surplus shareholders' fund of about Rs 1,400 crore from Clix, for use on the bank's assets. This fund is sufficient for the bank. On the top of this, the bank's advisors have also received interest from other investors to the tune of Rs 1,000 crore," he added.
In mid-June, the bank made an announcement about receiving a non-binding letter of intent from Clix Group for amalgamation of Clix Capital Services and its subsidiary into the bank. "In addition to the proposal from Clix Group, and the bank's advisors, we look for few large marquee long-term investors as well in mutual consultation," the bank had said while announcing the deal last month.
When asked about the timeline to close the deal with Clix Capital, Sundar said that due diligence process is going on after signing the letter of intent in June. "We have fixed a maximum time of 45 days (to close the deal)," he added. "On the regulatory hurdle, I don't think there should be any issue. They (Clix) are smaller in size as compared to our bank, they are high on capital but on asset size we have assets of Rs 20,000 crore and their assets are only about Rs 5,000 crore.
"...Merger should not be very difficult in the normal way. And they (Clix) are not into real estate, and all this I think suits well, off course subject to clearance," Sundar said. LVB's total capital adequacy ratio, as per Basel III guidelines, was at 1.12 per cent as on March 31, 2020. The same was at 3.46 per cent as on December 31, 2019 and 7.72 per cent as on March 31, 2019.
The bank, which was established in 1926, has raised equity capital of only Rs 2,002 crore in the last five years. Sundar said that liquidity-wise, the bank is strong and would leverage it to provide gold loans and as well loans to micro, small and medium enterprise (MSME) borrowers.
"Luckily, I am having surplus liquidity. In banking, you need capital adequacy and as well as liquidity, I have liquidity. So I will use the liquidity... and grow my portfolio. We can even do full-fledged other advances also," he said. Sundar said the bank is focussing on gold loans as well as the central's government guaranteed backed loan scheme for the MSME borrowers.
The lender swung into the black by posting net profit of Rs 92.86 crore in the quarter ended March 2020. It had been incurring losses for the past ten quarters and the Reserve Bank of India initiated a Prompt Corrective Action (PCA) in September 2019. Under the PCA, the bank has been asked to bring in additional capital, restrict further lending to corporates, reduce non-performing asset (NPA) and improve its provision coverage ratio to 70 per cent.
Bank's liquidity position is comfortable with liquidity coverage ratio (LCR) of about 273.21 per cent against the minimum 100 per cent required by RBI, it said while announcing the March 2020 quarter earnings last week. LCR is the proportion of highly liquid assets held by financial institutions to ensure their ongoing ability to meet short-term obligations.
The bank also does not have any asset-liability mismatch and is successfully fulfilling its commitments to deposit-holders, bond holders account-holders and creditors, the bank had said.