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Lakshmi Vilas Bank might need a white knight to tide over crisis

First among its priorities now it is to raise capital to comply with regulatory norms, but in the absence of a strategic investor, the task becomes more difficult, said analysts.

Published: 11th October 2019 07:44 AM  |   Last Updated: 11th October 2019 09:40 AM   |  A+A-

Lakshmi Vilas Bank

Lakshmi Vilas Bank (File Photo | EPS)

By Express News Service

HYDERABAD: Troubles of Lakshmi Vilas Bank (LVB) deepened as the Reserve Bank of India (RBI) has rejected its merger proposal with Indiabulls Housing Finance and Indiabulls Commercial Credit Ltd.

LVB shares, already in a free fall, lost another five per cent on Thursday to touch a 52-week low of Rs 25.65 on BSE.

First among its priorities now it is to raise capital to comply with regulatory norms, but in the absence of a strategic investor, the task becomes more difficult, said analysts.

LVB has necessary board approvals in place to raise up to Rs 1,000 crore through equity and Rs 500 crore via tier I and II bonds.

ALSO READ: RBI's rejection of Indiabulls-Lakshmi Vilas Bank merger fans contagion risks

As on June 2019, its capital adequacy ratio and tier 1 CAR stood at 6.46 per cent and 4.46 per cent respectively against the regulatory norm of 10.875 and 9 per cent. It was 7.72 and 5.72 per cent as on March, 2019.

“In the usual scenario, raising capital from the market would have been relatively easy, but the recent allegations about misappropriation of funds may have an undesirable affect,” a banking analyst told TNIE.

Last month, financial services firm Religare Finvest accused LVB of misappropriation of its Rs 790 crore fixed deposit.

Consequently, the Delhi Economic Offenses Wing registered an FIR against the bank for alleged cheating, criminal breach of trust, criminal misappropriation and criminal conspiracy.

ALSO READ: RBI's rejection of Indiabulls-Lakshmi Vilas Bank merger fans contagion risks

In August, the bank’s MD and CEO Parthasarathi Mukherjee resigned citing personal reasons.

The bank’s net loss widened to Rs 237 crore during the June quarter against a net loss of Rs 124 crore a year before, while its gross NPAs, as a percentage of gross advances, rose to 17.30 from 10.73 per cent cent. In FY19, its net loss widened to Rs 894 crore from Rs 585 crore in FY18.

It desperately needs a white knight, which can adequately capitalise the lender. Besides, the bank needs aggressive recoveries from its bad loans and resume lending.

ALSO READ: Indiabulls Housing shares tank 19%

“The likelihood of a positive outcome was anyways bleak given the way events were unfolding — litigation and investigation initiated against Indiabulls Housing Finance and LVB put under the PCA framework,” said Kunal Shah of Edelweiss Securities.

Last month, the bank suffered another blow from RBI, which placed it under the prompt corrective action after an on-site inspection for the year ended March 2019.

The restrictions were on account of high level of NPAs, lack of capital and negative return on assets for two years in a row. The move prevents the bank from fresh lending unless it meets the above criteria.



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