Lakshmi Vilas Bank exploring other avenues to raise capital; stock falls

A day after the Reserve Bank of India's (RBI) refusal for the proposed amalgamation of Indiabulls Housing Finance (IBHFL) and its subsidiary with Lakshmi Vilas Bank (LVB), the latter said it would be exploring other avenues for getting investment.

Earlier, it had got shareholder approval to raise up to Rs l,000 crore through equity and Rs 500 crore by way of Tier-l and Tier-II bonds.
 

"This brings an end to the recent uncertainity and the bank will continue to work towards raising capital as per the permitted modes," said LVB.

The bank’s chairman did not respond to calls or messages. The then managing director and chief executive, Parthasarathi Mukherjee, resigned two months earlier.

The share price hit a 52-week low at Rs 25.65 on Thursday, after the RBI rejection. Bank officials said with the fall in share price and valuation, there could be interest from other investors. One said there had earlier been eight or 10 proposals in hand, of which nothing came to a concluding stage, but for IBHFL. The main reason being the valuation.

However, if LVB finds a new investor, it might require a larger dilution of shares from existing shareholders to meet the funding need.

The fact that it is under the Prompt Corrective Action (PCA) clamp of RBI on account of high net non-performing assets (NPAs) and insufficient capital to risk (weighted) assets ratio could be addressed if capital comes in, said sources. 

In April, after announcing the amalgamation plan, then MD Mukherjee told Business Standard that without a merger, the focus would only have been to conserve the capital, limiting growth to hardly five per cent. 

With merger and the Indiabulls capital, annual growth could be up to 25 per cent. By 2026, its century year, the new target had been to grow by around six times, while the original plan before merger was three times.  

A Brickwork Ratings report, which on Wednesday downgraded its rating on the bank's Rs 50.5 crore of bonds, said asset quality continued to remain weak, with a rise in gross NPAs over the past three quarters. Slippages, though volatile, are on the higher side. 

"Fresh slippages or additional provisioning requirement on account of ageing of the NPAs remain a key monitorable. Capital adequacy ratios are weak and lower than the regulatory requirement," it added.Limitations as a result of PCA might restrict credit growth, though the bank states no restrictions on operations by depositors and lending activities to all segments, except corporates and other stressed and high risk sectors, went the report. 

On September 26, the economic offences wing of the Delhi police registered a case against LVB's board of directors, on allegations of cheating and misappropriation. The company denied the charges but its share price started declining steadily after that.

Troubled times

• LVB's share price hit a 52-week low at Rs 25.65 per share on Thursday 
• Of 8-10 proposals for fund raising, LVB finalised IBHFL amalgamation 
• Under the share swap deal, LVB shareholders was to get 14 shares of IBHFL for every 100 equity shares held in the bank 
• Shareholders approved capital raising of up to Rs l,000 crore through equity mode 
• It has received the green light for fund raising of Rs 500 crore by way of tier-l and tier-II bonds