Private sector lender Lakshmi Vilas Bank is hopeful of returning to profitability and come out of the prompt corrective action (PCA) framework by the end of the next financial year.
The mid-sized lender, whose planned merger with the Indiabulls Group was scuttled by the regulator last October, has been under the Reserve Bank's PCA framework since September 2019 curbing regular lending and other operations.
In the December 2019 quarter, the Chennai-based bank has seen some improvement in asset quality with no new non-performing assets (NPAs) being added and contained at Rs 257 crore, down from Rs 534 crore in the previous quarter. Also, better recoveries helped it narrow net losses to Rs 334 crore in the December 2019 quarter from Rs 357 crore a year ago and from Rs 456 crore in the previous quarter.
Another key improvement was in lower operating losses that came down to Rs 19.85 crore, from Rs 25.10 crore in the December 2018 quarter and from Rs 40.37 crore in the September 2019 quarter. Similarly, the cost-to-income ratio also improved to 110.38, from 112.56 in the year-ago quarter and from 124.07 in the previous quarter.
Also, its provision coverage ratio is sniffing at the RBI-mandated 70 levels at 68.70 in the December 2019 quarter, compared with 63.08 a year ago and 62.28 in the previous quarter.
But, the asset quality and core capital base remain still critically low. While the capital adequacy ratio under Basel-III stood at a low 3.46 during the reporting quarter, more than halving from 7.57 a year ago, gross NPA ratio as percentage of total advances improved to 21.25 per cent from 23.27 per cent, and net NPAs to 9.81 per cent from 10.47 per cent.
"I expect some clear green shoots to be visible from Q2 of FY21 and full profitability in the fourth quarter of the new fiscal which will enable (the bank) to come out of the PCA framework as well," Interim Chief Executive Officer S Sundar told PTI over phone.
Also, the rising recoveries will help shore up the core capital apart from other capital-raising means that include a merger or part sale of equity.
"The board has mandated me to talk to investors so that we raise Rs 1,500-2,000 crore by any means, which includes stake sale or an outright merger. We need this much capital to come out of the PCA," Sundar said.
Already, all-round improvement is seen across all key operational parameters and the bank hopes to take this further as it moves on, which of course is contingent on how the economy fares in the new year, he added.
"The two key focus areas are recovery, which we expect in the March quarter to net over Rs 500 crore. Another key is to add at least Rs 200 crore to our gold loan book which is around Rs 2,600 crore now and Rs 100 crore each to the SME (small and medium enterprises) book on a monthly basis going forward," said Sundar.
So far this year, recoveries stood at Rs 267 crore in the third quarter of FY20, up from Rs 137 crore in Q2 and Rs 113 crore in Q1, taking the total recoveries to Rs 517 crore and Sundar hopes to collect as much as this in the current quarter if not more.
"Another area we are looking at is the one-time settlements (OTM). This quarter will see some Rs 400 crore of recoveries through OTS. And the mandate for the next fiscal is around Rs 2,000 crore," said Sundar, who is also the bank's chief financial officer.
On the tussle with the Religare group, which has taken it to the Delhi High Court after it encashed over Rs 800 crore of deposits, he said the bank has made a interim provision of Rs 200 crore for this, taking its overall provisions to Rs 2,500 crore.
Through the current financial year, the bank has raised Rs 738 crore in fresh capital including from the 4.95 per cent stake sale to Indiabulls in the run-up to the failed merger.
Since the PCA kicked in, the bank's total business shrunk to 41,100 crore from Rs 54,910 crore in the third quarter of 2018-19. Likewise, its low-cost Casa book slipped from 25.88 per cent to 22.85 per cent and advances declined to Rs 17,535 crore from Rs 24,123 crore.