RBI may push headless LVB to merge


CHENNAI: The unprecedented move by shareholders of Lakshmi Vilas Bank to oust an RBI-approved CEO and directors is likely to result in the banking regulator stepping in to hasten the deal with Clix Capital or to find other bidders for the bank. On Sunday, the Reserve Bank of India approved constitution of a committee of three independent directors – Meeta Makhan, Shakti Sinha and Satish Kumar Kalra to manage day to day affairs of the bank.
A recent amendment to the Banking Regulation Act gives the Reserve Bank of India sweeping powers to push a merger. AION-backed Clix Capital, which is founded by Pramod Bhasin former head of GE Capital in India had initiated due diligence of the bank ahead of a merger.
LVB had initiated merger talks with Clix after RBI rejected an earlier proposal to merge with Indiabulls Housing Finance. The bank urgently needs an investor as it is facing lending restrictions for over a year from RBI under its prompt corrective action after executives came under probe for fraud in respect of fixed deposits of Religare Finvest.

On Friday irate shareholders of Lakshmi Vilas Bank ousted seven directors, including its MD & CEO and auditors at the AGM. On Sunday the truncated board sought to assuage investors stating that the bank’s liquidity situation was comfortable and assured the depositors that their monies were safe. Parallelly the Bank said it will go ahead with the proposed amalgamation with Clix Capital. Clix Capital declined to comment on the future of the deal. Ousted MD of the Bank, Sundar too did not pick up calls.
A statement issued by the bank said that Makhan will head the three-member committee. It added that the bank’s liquidity position as on date is comfortable, with Liquidity Coverage Ratio (LCR) of over 250% against the minimum 100 % required by RBI. Further, besides existing business, the Bank will continue its focus on capital-light loans.
LVB’s troubles started after it shifted its focus to lend to large businesses from SMEs. Its loans, nearly Rs 720 crore to the investment arms of Malvinder Singh and Shivinder Singh, former promoters of pharma major Ranbaxy and Fortis Healthcare, against fixed deposits (FDs) of Rs 794 crore made with the bank in late 2016 and early 2017 turned the bank turtle. Religare later sued the Delhi branch of LVB after the bank invoked the FDs to recover the loans.
Bad loans or gross non-performing assets or bad loans (NPA) leaped from 2.67% in 2017 to 15.30% in 2019 to 25.39% in March 2020, while the deposits shrunk from Rs 31,000 crore to Rs 21,000 crore in the same period. The bank was put under Prompt Corrective Action of RBI in September 2019.
Several directors resigned during the past couple of years as also an MD who piloted an aborted merger proposal with IndiaBulls Housing last October.
Started by a group of seven progressive businessmen of Karur under the leadership of V S N Ramalinga Chettiar in 1926, the bank has expanded with 566 branches, and 918 ATMs in 19 states and 1 union territory so far. “The bank grew while it was operating out of Karur. It all started in 2014, when the headquarters were shifted to Chennai from Karur and ever since the shift, the bank’s downhill journey started,” reminisced a retired general manager of the bank. “Since it had its roots in a small town, the bank was built by forging a strong relationship with customers,” said a former employee of LVB. Though he had left the bank almost a decade ago, he still nurtures the relationships he built during his stint there. “This has happened because of the NPAs. But it is an excellent bank and I am sure it would bounce back,” he said.

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