‘Merger or strategic investor could turn around loss-making Lakshmi Vilas Bank’s fortunes’

A possible merger with a stronger bank or the culmination of its proposed investment from Clix Group are two possible ways ahead for-crisis ridden Lakshmi Vilas Bank with experts pointing out that apart from balance sheet problems, the private sector lender has also faced governance issues.

“This whole issue has been allowed to fester for a while. The bank is past it’s ‘best before date’, and vote is a signal that investors have sent to RBI (Reserve Bank of India) to find a solution to this. Regarding the progress of the deal with Clix Group it will depend on who was negotiating it - the erstwhile CEO, the erstwhile board members or the RBI representatives. Depending on the answer, we will know whether it will continue or has to start afresh,” said Amit Tandon, founder and Managing Director of corporate governance and proxy advisory services, IiAS.

The options for the bank include injection of capital or a strategic investor or alternatively a merger with another bank, he added.

IiAS had recommended voting against N Saiprasad, Raghuraj Gujjar, KR Pradeep and B Manjunath back to the board of Lakshmi Vilas Bank at its annual general meeting on September 25.

Experts said that any decision on the future of the bank will depend on the RBI, which approved on on Sunday night that day-to-day affair of the lender will be run by a Committee of Directors composed of its three independent directors.

“Governance is now a more important issue than law for Corporate India. In the case of Lakshmi Vilas Bank, just meeting the liquidity ratio is not enough. Institutional investors look for higher level of governance and fair business dealings. The bank can call another general meeting and seek re-appointment of its directors but now with RBI involved in the issue, it will not be such a simple matter,” said Pavan Kumar Vijay, founder, Corporate Professionals.

The bank’s scrip closed 5.21 per cent higher at ₹20.20 apiece on BSE.

Bank officials are also embroiled in the problems at Religare Finvest. Last week, Economic Offences Wing of the Delhi Police arrested two senior officials of the bank for colluding with the former owners of troubled Religare Enterprises and misappropriating funds to the tune of ₹729 crore of RFL.

“These directors had been associated with the bank for long and had not contributed to its progress. So what is the point of shareholders of appointing them? There is a need to bring in a different set of directors. InGovern had advised shareholders against appointing them,” Shriram Subramanian, founder and MD, proxy advisory services firm InGovern had told BusinessLine .

Vote against re-appointment

In a sudden turn of events that deepened the crisis at Lakshmi Vilas Bank, shareholders had rejected proposals to reappoint seven directors as well as statutory auditors. The bank had however, maintained that its liquidity position as on date is comfortable, with Liquidity Coverage Ratio at about 262 per cent against minimum 100 per cent required by RBI.

“All the existing employees of bank will continue to be in full service as usual, and remain committed to serve customers,” it added.

However, loss-making Lakshmi Vilas Bank has been looking for an investor for some time. The bank had incurred losses for the last 10 quarters and reported a net loss of ₹112.28 crore in the first quarter this fiscal. Its Tier 1 CRAR has turned negative at -0.88 per cent as on June 30, 2020, as compared to the minimum requirement of 8.875 per cent.

Troubles began with its fast-paced growth in loans between FY14 and FY18, mainly led by chunky corporate assets. From mere 2.7 per cent in March 2017, gross NPAs as a per cent of loans shot up to 25.4 per cent in FY20 (at the same level in the June 2020 quarter).

(With inputs from Radhika Merwin)