CARE Ratings has downgraded the ratings on a host of instruments issued by crisis-ridden Lakshmi Vilas Bank (LVB), the bank informed the stock exchanges on October 10.
The rating agency has slashed ratings on various instruments totalling Rs 618.70 crore, citing sharp decline in networth, due to losses in FY20 and in Q1 FY21.
The bank reported a capital adequacy ratio (CAR) and Tier I CAR of 0.17 percent and a negative 1.83 percent, respectively, as on June 30. The ratings continue to derive strength from the long-standing operational track record of LVB and its established presence in southern India, the rating agency said in a note.
The ratings are constrained by LVB's regional nature of operations, weak asset quality parameters, weak capitalisation levels and continuation of losses in Q1 FY21. The rating also takes note of decline in total business of the bank due to capital constraints and the recent changes in the board, CARE said in the note.
“In view of current capital adequacy levels, timely mobilisation of capital to augment its CAR is critical in the near term. The negative outlook on rating reflects the likely continuation of negative networth in view of delay in mobilising fresh capital. Timely mobilisation of significant amount of equity capital is critical to improve capital adequacy levels,” CARE said in its rating review.
At its September 25 annual general meeting, shareholders ousted seven directors and statutory auditors of the bank, forcing RBI to appoint a committee of directors for management of day-to-day operations.
LVB is currently in talks with Clix Group for a merger.
The instruments downgraded by CARE includes Rs 250 crore proposed Basel III compliant Additional Tier I perpetual bonds, the rating of which has been cut from CARE B+ to CARE B-.
With the bank reporting capital adequacy below the regularity levels, the bank has been reducing the advances/risk weighted assets consciously in view of the constrained capital adequacy levels.
As a result, advances declined by 31 percent year-on-year to Rs.13,828 crore as on March 31. Deposits declined by 27 percent to Rs 21,443 crore as on March 31.
NPA situation worsens
CARE has raised concerns over the weak asset quality of the bank.
Gross and net non-performing assets (NPAs) of LVB increased to 25.39 percent and 10.04 percent as on March 31 from 15.30 percent and 7.49 percent as on March 31, 2019, respectively. In absolute terms, GNPA increased to Rs 4,233 crore as on March 31 from Rs 3,359 crore as on March 31, 2019.
Net slippages during FY20 stood at Rs 874 crore as against Rs 665 crore in FY19. Standard restructured assets declined to Rs 1 crore as on March 31 from Rs 40 crore as on March 31, 2019. LVB had outstanding security receipts of Rs 315 crore on March 31.
Merger on course
On October 8, LVB said it has received an indicative non-binding offer from Clix Group for the proposed merger, indicating that the merger is on course. On September 15, the bank had said the mutual due diligence process for merger with Clix Group is substantially complete and both parties are in discussions on the next steps.
The bank had signed a non-binding letter of intent with Clix Capital Services Pvt and Clix Finance India Pvt as on June 15.
Clix Capital is into financial services offering various types of loans and is headed by Pramod Bhasin who acquired the business in 2016 from GE Capital. Private equity firm AION Capital Partners is a significant shareholder in the company.
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