Lakshmi Vilas plans to raise at least Rs 500 crore through rights issue

Proposed right issue is to increase the capital adequacy ratio as lender pursue talks with Clix Capital for a proposed merger

Lakshmi Vilas Bank (LVB) plans to raise at least Rs 500 crore through a rights issue, expecting its institutional investors will participate to protect their money.

Nearly 60 per cent shareholders last week voted against the appointment of MD & CEO and six directors, including promoter K R Pradeep, prompting India’s central bank to appoint a committee to manage the lender

Shakti Sinha, a director on the board of LVB, said the Bank is exploring various options to raise capital. Merchant bankers will advise it raising capital. "We want to work with the shareholders. Viability and market sentiments are important," said Sinha, adding that two directors will pursue talks with Clix Capital for a proposed merger.

A senior official of an institutional investor that holds less than 5% stake in the bank confirmed the plan for a rights issue. "We will subscribe to the issue if we are assured of good governance. The bank has a strong franchise and it has the potential to turnaround. Hence, we will offer our support, for the sake of our investment," said the official, who requested anonymity.

Sources said that the proposed right issue is to increase the capital adequacy ratio (CAR). As of June, LVB's Basel-III compliant CAR slumped to 0.17% from 1.12% in the previous quarter. The bank's tier-1 capital ratio turned negative and worsened sequentially to (-)1.83% in April-June from (-) 0.88 per cent, compared with the minimum requirement of 8.875 per cent.

During the bank's annual general meeting, shareholders approved a resolution authorising it to undertake capital raising as FPO, Rights issue, QIP or other available routes to raise capital. If the Bank goes for QIP in the current circumstances how the investors interest would be is a big question so the Bank decided to explore rights issue seriously.

If there is a capital infusion of about Rs 1,200 crore, then the operating profit in three years will be about Rs 100 crore, said an official.

The lender’s only shot at survival is an investor putting in a chunk of capital.

Bank's attempt to Indiabulls Housing Finance with LVB, which in turn would have brought a good capital, was rejected by RBI. The Regulator did not give reasons for denying permission.