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Cash-strapped Lakshmi Vilas Bank’s plan B to stay afloat — Rs 500-crore rights issue

With no govt-led resolution plan yet, crisis-ridden Lakshmi Vilas Bank could get institutional investor support to raise fund. LIC, Aditya Birla Sun Life Insurance, Indiabulls are among its investors.

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Mumbai: With no indication of a government-led rescue plan for Lakshmi Vilas Bank (LVB) so far, the cash-strapped old-generation private lender has now activated a plan B to stay afloat until a new investor comes in.

According to sources close to the development, the bank is planning to raise Rs 500 crore through a rights issue and has sounded out institutional investors for support. These investors have indicated their willingness to support the lender in its fundraising effort.

A rights issue is subscription of additional shares by the existing shareholders.

While the LVB shareholders approved capital raising options like follow-on public offer and qualified institutional placement, sources said a rights issue is most likely as fundraising from new investors will be difficult after the bank landed in unprecedented management crisis last week.

“It is in the interest of the existing shareholders to support the rights issue, so that the bank gets some immediate capital which is essential to continue as a going concern,” said a source.

Shareholders, led by institutional investors, revolted at the bank’s annual general meeting last week as they rejected the appointment of seven board members, including managing director and chief executive officer S. Sundar.

The revolt was triggered by poor corporate governance practices as captured in a report by the proxy advisory firm Institutional Investor Advisory Services (IiAS).

IiAS highlighted corporate governance issues, including the presence of the same person on the board for a long time. It also opposed many resolutions of the annual general meeting.

Also read: Yet another private lender in crisis, but a rescue mission is on track at Lakshmi Vilas Bank

Bank’s financial condition

The bank’s total capital adequacy ratio, according to Basel III guidelines, was at 0.17 per cent on 30 June — much below the regulatory requirement. “Thus the bank is in immediate need of capital infusion,” the lender said in a statement last week.

The bank has a comfortable liquidity position with liquidity coverage ratio of 262 per cent against the minimum 100 per cent required by the Reserve Bank of India (RBI).

“Bank does not have any Asset-Liability mismatch and is successfully fulfilling its commitments to deposit-holders, bond-holders, account-holders and creditors,” the bank said.

Life Insurance Corporation of India, Aditya Birla Sun Life Insurance, JM Financial, Indiabulls Housing Finance, Srei Infrastructure Finance, Capri Global, among others, are some of the investors in the bank.

The bank has also been in talks with Clix Group for a potential buyout, but events that unfolded last week could make the deal uncertain.

Such buyouts of banks need RBI’s approval and the regulator’s comfort in allowing Clix to offer banking services is still not known. The RBI has been conservative in allowing new entities to set up banks. It earlier rejected Indiabulls Housing Finance proposal to take over LVB.

Need for fundraising

The fundraising is critical for Lakshmi Vilas Bank as there has been no indication from the RBI or the government for a rescue plan.

This is in sharp contrast with the Yes Bank episode that unfolded earlier this year during which both the regulator and the government acted swiftly to find new investors ensuring depositors don’t lose their money.

After the financial condition of Yes Bank deteriorated, resulting in rating downgrade, the private sector lender was unable to raise capital.

The RBI decided to put a moratorium on the lender and almost immediately prepared a rescue plan in which the State Bank of India was roped in to provide capital. Other private sector banks also joined in infusing capital in the bank and the moratorium was lifted within a fortnight.

Also read: After Lakshmi Vilas Bank, Dhanlaxmi faces management crisis as shareholders reject new CEO


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