Lakshmi Vilas Bank (LVB) has been in the news quite recently due to their bad loan disaster, management reshuffling, and the consequent controversies with the RBI. Now let’s see what the future holds for the bank.
So, What exactly happened?
In the 93rd Annual General Meeting of the bank held on 25th Sept, shareholders of LVB voted against the seven members from the senior management which includes the interim MD&CEO. It is said that this decision was made because the shareholders were unhappy with the rise in bad loans, value erosion, and were concerned with the future of the bank. This decision lead to the RBI appointing three members namely, Meeta Makhan, Shakti Sinha, and Satish Kumar Kalra, and instructed them to look after the daily affairs of the bank alongside the remaining four officials of the bank. According to the conversations with banking experts, they are of the opinion that the RBI will soon appoint an administrator.
It all started after the bank shifted its focus from SMEs to large businesses, in 2016-17. In this shift, the bank loaned a sum of Rs 720 crore to Malvinder Singh and Shivinder Singh who are former promoters of Ranbaxy and Fortis Healthcare for which the bank accepted a fixed deposit of Rs 794 crore. That turned out to be a bad loan.
In 2018, Religare Finvest sued a branch of LVB in Delhi to recover fixed deposits which cost about Rs 800 crore that the bank solicits to recover loans given to the Singh brothers. This lead to RBI putting LVB under prompt corrective action (PCA) in September 2019 which resulted in the non-issue of fresh loans or opening any new branch anywhere by the bank. The PCA has not been revoked yet. As of date, the case is sub judice and two employees of the bank have been arrested.
The Lakshmi Vilas Bank was looking for potential mergers and approached the India Bulls Housing Finance, an NBFC. But soon after a month’s time, being in the PCA framework, RBI delivered another verdict which caused LVB refusal from the Central bank on their proposed merger between India Bulls Housing Finance and LVB. RBI did not mention the reasons behind this disapproval. Banking Experts believe that the idea of NBFC acquiring a bank itself didn’t have merit. Left with no choice LVB had to find another alternative investor who could fund the bank.
After trying to make a deal with the India Bulls Housing Finance, LVB announced that they are in merger talks with Clix Capital. One of the senior officers of the bank gave an exclusive interview where he mentioned that the merger is running smoothly and is as per the schedule whereas, in another interview, one of the senior officers from Clix Capital mentioned that the turmoil at LVB has put the deal in jeopardy. Though the shareholders of LVB have approved the merger with Clix Capital concerns lay as certain regulatory approvals are still pending in this case.
If we talk about the financial position of LVB, of all the 21 listed banks in the country, LVB stands second last with a market cap of Rs 680 crore. Bad loans are a major problem with the bank’s finances.
The gross NPA of the bank has increased to a quarter in this Financial Year.
Gross NPA of the Bank was 10% in 2018 which increased to 15.3% in 2019 and 25.4% in 2020. Promoters have also pledged their shares. The interesting fact to be noted here is that the FIIs and DII investments have increased in the bank in the last four years.
Taking a sneak peek in the future, LVB will have to wait for some time to come out of PCA. The bank is focused on raising capital. Though some official from the bank asserts that no change in the way of working and the way depositors view them have been observed, and they expect nothing to worsen in the near future. However, they have to be very careful and vigilant from now onwards.
There are talks about RBI pushing the bank into a merger. While there are believes that the situation is directly reviewed by the finance ministry. There are also talks about RBI checking with PNB whether it can acquire the bank or not. There is no evident news regarding the future of the bank till now. But if the deal with Clix clicks, the bank will be out of major troubles.