LVB has already engaged informally with some of its existing investors to understand their willingness to participate in the issue. Rights issue is an active option on the table.
Crisis-ridden Lakshmi Vilas Bank, which is in urgent need of capital to survive, has engaged with some of its existing institutional investors informally to understand if they will participate in a rights issue if the bank goes ahead with the plan.
According to people familiar with the development, the bank might plan a rights issue between Rs 500 crore and Rs 700 crore to raise capital. “The bank has informally approached some of its existing institutional investors to understand their interest,” said one of the persons on condition of anonymity.
Most of the institutional investors of LVB are in favour of a rights issue and will subscribe to it, added the person. The bank urgently needs at least Rs 1,500 crore to meet the basic capital requirements. An email sent to Lakshmi Vilas Bank seeking its response remained unanswered till the time of filing this story.
At the recent AGM, the shareholders had approved resolution authorising the bank to undertake capital raising as FPO, rights issue, QIP or other available routes to raise capital.
A rights issue looks a more probable option for the lender since as all other options including a follow on offer or qualified institutional placement will require participation of new investors which looks tough at the current stage, said one of the persons quoted above.
Last week, the LVB assured investors that the bank's liquidity position is comfortable, with liquidity coverage ratio (LCR) of around 262 percent against a minimum 100 percent required by the RBI, the lender said, adding, the management continues to enforce direct and indirect cost reduction measures.
Provision coverage ratio (PCR) remains healthy at 72.6 percent as against the minimum 70 percent prescribed under RBI's Prompt Corrective Action (PCA) framework.
However, these assurances haven’t calmed the investors as the capital adequacy ratio of the bank has plummeted and NPAs have jumped.
LVB plunged into a leadership crisis last week when shareholders voted out seven directors including the interim CEO and statutory auditor due to unhappiness with the way the bank functions. Following this, the RBI appointed a three-member committee of directors to run the bank.
LVB is in the midst of a merger deal with Clix Capital. In the backdrop of last week’s events, the RBI wants the LVB-Clix deal to happen at the earliest. If this deal falls through, the central bank might look at other options to save the bank from a financial failure.
LVB, in an update earlier, had informed the exchanges that the due diligence process for merger is substantially over and the discussions are on to the next stages.
“We wish to inform that the mutual due diligence is substantially complete, and the parties are in discussions on the next steps. The bank will continue to share any further information as and when they materialize,” the bank said in a communication to exchanges on September 15.Earlier, the bank had signed a preliminary, non-binding letter of intent (LOI) with Clix Capital Services Private Limited and Clix Finance India Private Limited as on June 15, 2020, in relation to the proposed amalgamation of Clix Group with the bank. 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.