Lakshmi Vilas Bank board to meet on October 15 to consider rights issue

Private sector lender Lakshmi Vilas Bank (LVB) said the lender’s Board will meet on October 15 to consider a rights issue to raise up to Rs 1,000 crore.

"Pursuant to Regulation 29(1 )(d) of the SEBI Listing Regulations, please note that a meeting of the Board will be held on Thursday, October 15, 2020 to consider and approve, inter alia, the issue of Securities of the Bank to existing shareholders of the Bank on a rights basis, as may be permitted under applicable law, subject to such regulatory/statutory approvals, as may be required," the bank said in a note to exchanges on October 11.

On October 1, Moneycontrol first reported that LVB 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.

Earlier, at the September 25 annual general meeting (AGM) of the bank and in an August 26 board meeting, resolutions were passed for capital raising of up to Rs 1,000 crore through options including an issue of global depository receipts, American depository receipts, foreign currency convertible bonds, follow-on public offer (FPO), rights issue or through qualified institutional placement. The board has now decided on a rights issue.

Sources had previously told Moneycontrol that most of the institutional investors of LVB were in favour of a rights issue and would subscribe to it. The bank urgently needs at least Rs 1,500 crore to meet the basic capital requirements under the regulator's norms.

A rights issue was the most logical option for the lender as all the other options -- including a follow on offer or qualified institutional placement -- would require participation of new investors which "looks tough at the current stage", said one of the persons.

LVB plunged into a leadership crisis when shareholders, at the AGM, voted out seven directors including the interim chief executive and statutory auditor due to unhappiness with the way the bank functioned.

Following this, the RBI appointed a three-member committee of directors to run the bank.

LVB is also in the midst of a merger deal with Clix Capital. In the backdrop of the current events, the RBI wants the LVB-Clix deal to happen at the earliest. If the deal falls through, the central bank might look at other options to save the bank from a financial failure.

On October 8, LVB had informed exchanges that it received  an indicative non-binding offer from Clix Group for the proposed merger.

Read: Lakshmi Vilas Bank says received an ‘indicative non-binding offer’ from Clix Group

The lender has assured investors that it has enough liquidity, calling its liquidity position is "comfortable", with a liquidity coverage ratio (LCR) of around 262 percent against a minimum 100 percent required by the RBI. It added that the management continued 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 investors as the capital adequacy ratio of the bank has plummeted and non-performing assets (NPAs) have jumped.