The proposal of Clix Group merger with the private sector lender Lakshmi Vilas Bank is on the table but the Reserve Bank of India (RBI) wants to be sure about the large fund infusion that the bank needs to come back on its feet.
In case of public sector lender IDBI Bank, the state-owned Life Insurance Corporation (LIC) came to the rescue whereas the private sector YES Bank was bailed out by the largest bank SBI along with half a dozen other banks.
While the 94-year old private sector bank is a much smaller bank with a balance sheet of Rs 25,000 crore, one-tenth of YES Bank and one-twelfth of IDBI Bank, this Chennai-headquartered bank needs immediate infusion of capital. "Clix Group has to have a plan to handle the current high asset quality deterioration, provisioning pressure and also a ready capital for future growth," say sources.
Clix Group joined the merger fray in June this year. The company has already done the due diligence. 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.
"There could be some interest from private sector banks as this bank has good network of branches in the South," say sources.
The bank with 566 branches has its capital adequacy ratio falling to 0.17 per cent in June 2020 as against the minimum 9 per cent. The promoters currently hold just 7 per cent equity stake while the public has a large 93 per cent shareholding. There are many institutional investors in the bank as many expect the takeover of the bank by an NBFC or a non-bank player resulting into a faster turnaround.
The bank's gross NPAs have touched 25.39 per cent in the same period. The bank has been making losses since 2017-18. The losses increased from Rs 585 crore in 2017-18 to Rs 836 crore in 2019-20. Due to COVID-19 stress, the NPAs are likely to move up once the restructuring period of two years gets over.
The shareholders are not too happy with the management. They have recently ousted the bank's seven directors including the RBI-appointed MD & CEO. Currently, the day-to-day operations of the bank are managed by a committee of directors consisting of three independent directors. The committee exercises all the powers of an MD&CEO for the time-being.
The first big task before the RBI is to take the bank out of the 'weak' tag. The old private sector bank has been under the RBI's prompt corrective action (PCA) framework since September last year. The bank's operations are already monitored by the RBI with lending to safe assets.
The bank has been making losses for the last three years. The big issue for any suitor would be the disputed 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 group. The issue of adjusting deposit has already been contested by the 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 sub-judice.