A section of shareholders of Lakshmi Vilas Bank who are unhappy with the way it is managed and the sharp deterioration in its finances opposed the appointment or re-appointment of seven directors and auditors at the lender’s Annual General Meeting (AGM) held on September 25.
The list of directors who attracted the ire of some shareholders include Managing Director and CEO S Sundar, who was appointed as the interim MD of the bank in January, people familiar with the matter told Moneycontrol.
“The shareholder vote reflects the unhappiness with respect to the way this management has been conducting the operations of the bank,” said one of the institutional investors at LVB, which has also been grappling with governance issues and soaring bad loans and a negative return on assets for two successive years.
All the people Moneycontrol spoke to did not want to be named citing sensitivity of the matter.
N Ramanathan, Company Secretary of LVB and Muthusamy, JMACS Associates (Scrutinisers), refused to comment on this story. An email sent to Sundar seeking a response remained unanswered at the time of filing this story.
LVB has been in dire need of capital and has been scrambling to find a buyer. The private lender is in talks with Clix Capital for a merger and secure the much-needed capital. On September 15, LVB gave the first confirmation to its investors that the bank may be past the worst phase and this time a deal may happen.
At the AGM, done through videoconferencing due to COVID-19, some shareholders also contested the appointment or re-appointment of N Saiprasad as Director, Gorinka Jaganmohan Rao as Non-Executive Independent Director, Raghuraj Gujjar as Non-Executive Non-Independent Director, KR Pradeep as Non-Executive Non-Independent Director, BK Manjunath as Non-Executive Independent Director, and YN Lakshminarayana Murthy as Non-Executive and Independent Director.
The shareholders also voted against the re-appointment of statutory auditors (P Chandrasekar LLP, Chartered Accountants) and branch auditors. Branch auditor is appointed in consultation with the statutory auditor. Since the appointment of statutory auditor is opposed, the appointment of the branch auditor is also opposed.
An email sent to statutory auditors seeking response on the matter remained unanswered till the time of filing this story.Why did the shareholders oppose?
According to the March quarter figures, LVB has a capital adequacy ratio (CAR) — a measure of the financial stability of a lender — of just 1.12 percent as on March 31 as against the RBI requirement of 8 percent. Similarly, the Tier I and II components of CAR stood at a negative 0.88 percent and 2 percent, respectively.
Gross non-performing assets (NPAs), or bad loans, as on March 31, stood at 25.39 percent compared with 23.27 percent a year ago.
“In the absence of an immediate capital infusion, there is no way the bank could have survived,” said a senior banker with a private bank. He didn’t want to be named.
In the March quarter results notes, under the head 'material uncertainty related to going concern', the bank’s auditors had outlined the severe financial situation the company is going through and indicated that any chances of survival depend on capital infusion.Weak balance sheet
LVB has been incurring losses for the past 10 quarters and the RBI initiated Prompt Corrective Action (PCA) in September 2019, which inter alia prescribes the bank to bring in additional capital, restrict further lending to corporates, reduce NPAs, and improve the Provision Coverage Ratio to 70 percent.
The distressing finances require the bank to take effective steps to augment its capital base in 2020-21. “We were informed that the bank routinely evaluates its capital raising options,” the auditors said.LVB–Clix merger
On the proposed merger with Clix, LVB informed the stock exchanges that the two companies have substantially completed the mutual due diligence for a merger. Both companies are now on to the next stage of discussions. The news enthralled the investors who rushed to buy the share of the bank on September 16 morning.
LVB looked to merge with Indiabulls Housing Finance last year but the Reserve Bank of India (RBI) opposed the deal without offering a reason.
But with Clix, investors are hopeful because the deal has progressed past the due diligence. Clix Capital, founded by Pramod Bhasin, who previously headed BPO company Genpact, has deep pockets and boasts a track record in financial services that is sufficient enough to impress the regulator.
Clix Capital offers various types of loans. Bhasin acquired the business in 2016 from GE Capital. Private equity firm AION Capital Partners is a significant shareholder in the company.