DBS offered to acquire 50% of LVB in 2018, but RBI rejected: Promoter

K R Pradeep, the single largest promoter of the crippled Lakshmi Vilas Bank with a 4.8 per cent shareholding, has said that Singapore's DBS was keen to acquire 50 per cent stake in the lender for a high valuation in 2018 but the Reserve Bank did not allow the deal to go through.

With the Reserve Bank of India (RBI) superseding Lakshmi Vilas Bank's board and mooting its merger with DBS Bank India, Pradeep also said he was confident that the central bank will be kind enough to listen to all the shareholders and promoters, and will not let them go empty handed.

Currently, Pradeep's 4.8 per cent shareholding in the lender does not have any value and so are the rest of the promoters and other shareholders, including retail shareholders who own around 45 per cent of its equity.

Apart from Pradeep, there are three other promoter families -- N Ramamritham, N T Shah and S B Prabhakaran -- who collectively own 2 per cent.

Together with Pradeep, the promoters' holding is just 6.8 per cent. Institutional investors led by Indiabulls Housing have around 20 per cent stake in the 94-year-old lender.

According to Pradeep, promoters are also looking at approaching markets watchdog Sebi but will wait for the final scheme of merger that the RBI will announce later in the day today.

"We have full faith that as the regulator the Reserve Bank will give us a patient hearing and that our inputs and objections to the draft scheme will be considered before taking a final call. So, it is too early to say whether we will be mounting a legal challenge to the regulatory decision," Pradeep told PTI on Friday.

Bengaluru-based Pradeep is a senior lawyer at the Supreme Court and also a chartered accountant. Before the RBI superseded the LVB board on November 17, and placed it under moratorium, he was a director of the bank that was launched in Karur in Tamil Nadu in 1926.

According to the draft merger scheme, the entire paid-up share capital of the bank will be written off upon the merger, which the RBI wants to be completed by December 16. This has shocked the bank's equity investors and some of them have threatened to seek legal remedies.

"In 2018, LVB appointed J P Morgan to scout for investors for a capital raising plan. J P Morgan invited a large number of investors and the offers ranged from Rs 100-155 a share. Then, DBS approached J P Morgan and offered Rs 100 a share and was ready to pick up at least 50 per cent stake of the bank," Pradeep said.

On why the deal did not go through, he said that DBS wanted control of the bank and consolidate its India balance sheet by expanding fast.

"They did not want to be a financial investor but to run the business. But the RBI objected to this citing prevailing rules applicable to all private sector banks and wanted DBS to lower the stake to 15 per cent in five years," Pradeep said.

This was not acceptable to the Singaporean bank, and thus the deal did not go through, he added.

Further, Pradeep pointed out that from Rs 100 a share, DBS will get the bank for nothing now and with a large balance sheet, if the RBI has its way.

"DBS has a capital base of Rs 7,500 crore and a deposit book of over Rs 20,000 crore. They are getting an equal amount in deposit book from LVB for zero absolutely nothing. This makes a compelling case for a proper valuation," he said.

Wondering whether the government can just sell a private business for free to another private entity, Pradeep said, "if profit is the criterion, how can the government seek a value for Air India and for many other loss-making state-units which were sold at a fair price," he said.

However, he is confident that the RBI can easily solve the valuation issue with innovative ways.

For instance, he said, the regulator can set aside some stake of DBS India for LVB shareholders or it can allow a part of the additional capital to be shared by the bank's promoters through a QIP issue or asking them to issue a tradable warrants/ debentures.

On the failed deal with Clix Capital, Pradeep said after the shareholders voted out the bank's entire management at last annual general meeting, the Clix group delayed their process which sort of tested the RBI's patience.

He also claimed that the crisis could have been avoided had the regulators cleared the bank's Rs 800-1,000 crore follow-on offer application and the Rs 500-crore rights issue application on time.

On November 17, the RBI unveiled a draft merger scheme under which, DBS will infuse Rs 2,500 crore regulatory capital into the cash-strapped LVB and the regulator wants the entire process to be completed by December 16. The RBI has given time till November 20 for various stakeholders to give suggestions and objections for the draft scheme.

Since November 17, LVB shares tanked over 35 per cent to Rs 9 on the BSE on Friday, shedding 10 per cent on Friday.

This is not the first time that the RBI has resorted to forced mergers of troubled banks. In 2004, it ordered merger of Global Trust Bank with Oriental Bank of Commerce and in 2006 it asked IDBI to take over United Western Bank.

Later, in 2008, Times Bank was asked to be merged with HDFC Bank and 2011 Bank of Rajasthan was merged with ICICI Bank. The latest such rescue was that of Yes Bank by SBI and seven other lenders in March.