Lakshmi Vilas Bank is down nearly 5% as concerns over Clix Capital merger deepen

Lakshmi Vilas BankBCCL
  • Lakshmi Vilas Bank’s share price was down by nearly 5% during morning trade.
  • After shareholders ousted seven directors from the board, red flags over the Clix Capital merger have risen.
  • The Reserve Bank of India (RBI) has reportedly informed the public-sector Punjab National Bank (PNB) to be prepared to take over in case the Lakshmi Vilas-Clix merger does not materialise.
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The share price of Lakshmi Vilas Bank is in the red today, plummeting by nearly 5%, which is a further indication of shareholders losing their confidence in the bank.

Lakshmi Vilas Bank share price over the month of SeptemberBSE/BI India

The Reserve Bank of India (RBI) has reportedly sought out Punjab National Bank (PNB). According to the Business Standard, RBI told the public sector bank to be ready to take over Lakshmi Vilas Bank in case the proposed deal with Clix Capital doesn’t materialise.

The crisis at Lakshmi Vilas Bank
On Monday, they threw out seven of the bank’s ten directors. According to the Investor Advisory Services (IIAS), these directors lacked accountability. Now, its day-to-day operations are being looked after by a panel of three independent directors approved by the Reserve Bank of India (RBI).
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“With Liquidity Coverage Ratio (LCR) of about 262% as on 27th September 2020, against minimum 100 % required by RBI, the deposit-holders, bond-holders, account-holders and creditors are well safe guarded,” the bank said in its filing on Sunday.

What the bank didn’t mention in its press release and why its shareholders are being angsty is because, as of last quarter, its Tier I capital-to-risky asset ratio (CRAR) is a negative 0.88% and its non-performing assets (NPAs) account for a quarter of its advances.

Ousting the Lakshmi Vilas Bank’s directors
During the annual general meeting (AGM) the week before, on Friday, shareholders voted against the appointment of S Sundar as Lakshmi Vilas’ CEO, a candidate approved by the RBI.
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Sundar took over as interim CEO on January 1 after Parthasarthi Mukherjee’s resignation a few months earlier. Before taking up the post, he served as the bank’s CFO.

The shareholders also voted against the reappointment of six other directors — including N Saiprasad and KR Pradeep, who are also promoters within Lakshmi Vilas.

“What we see in smaller, community-driven, private banks is promoters dominating the show. That isn’t desirable of a banking institution handling public money,” sources told MoneyControl after the dramatic AGM on the condition of anonymity.
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What’s next for Lakshmi Vilas Bank?
Institutional investors estimate that the bank will need at least ₹1,500 crore of immediate capital to get back on its feet. If it doesn’t happen, the RBI will likely have to step in.

It could either accelerate the ongoing Clix-Lakshmi Vilas deal or appoint its representatives to the bank’s board to oversee the day-to-day operations until a solution emerges.

It wouldn’t be the first time that the central bank has pushed for the merger of a weaker banking institution with a strong candidate, like ICICI Bank and Bank of Rajasthan merger in 2013. However, Lakshmi Vilas’ did try to merge with Indiabulls and another NBFC in the past. Both deals never got a nod from the RBI.
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