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

Private sector lender, Lakshmi Vilas Bank (LVB) on Thursday said it has received an indicative non-binding offer from Clix Group for the proposed merger.

“Further to the process of considering and evaluating the proposed amalgamation with M/s. Clix Capital Services Private Limited ("Clix Capital"), M/s. Clix Finance India Private Limited ("Clix Finance") and M/s. Clix Housing Finance Private Limited ("Clix Housing") (collectively, the "Clix Group"), we are glad to inform that, the Bank has received an indicative non-binding offer from Clix Group,” the bank said in a notification to BSE.

Lakshmi Vilas Bank on September 15 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 (LOI) with Clix Capital Services Private Limited and Clix Finance India Private Limited as on June 15, 2020.

With NPAs high and CAR inadequate, the RBI had put the bank under watch in September last year. The bank was pinning its hopes on Indiabulls deal last year for a possible merger but the RBI had rejected the merger in October last year without citing a reason.

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.

On September 25, at the digitally convened AGM, seven directors were ousted by shareholders, including the managing director and CEO. The anguished shareholders, unhappy with the governance at the Chennai-based bank, also ousted the statutory auditors.

Why this is important?
The update on Clix binding offer is significant since LVB is struggling to stay afloat without a strong leadership and low capital levels. The bank faced a crisis when shareholders had ousted seven directors, including the CEO and statutory auditors of the bank.

The directors whose appointments were not cleared by shareholders include N Saiprasad, Gorinka Jaganmohan Rao, Raghuraj Gujja, KR Pradeep, BK Manjunath and YN Lakshminarayana Murthy. The shareholders also voted against the re-appointment of statutory auditors (P Chandrasekar LLP, Chartered Accountants) and branch auditors. The branch auditor is appointed in consultation with the statutory auditor.

A few institutional investors who spoke to Moneycontrol, said shareholders were concerned about promoters indulging in the bank’s operations and failure to adhere to good corporate governance norms.

“What we see in smaller, community-driven, private banks is promoters dominating the show. That isn’t desirable for a banking institution handling public money,” one of the investors said requesting anonymity.

Following this, the RBI appointed a three member committee of directors (CoD) to run the day-to-day operations of the bank.

LVB desperately needs capital to stay afloat.

Capital woes
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 distressed 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.

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 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.

On September 30, Moneycontrol had reported that the RBI wants the LVB-Clix Group merger to happen at the earliest in the backdrop of events at the bank’s AGM last week.

“The RBI hasn’t put a deadline as such. But the regulator wants both parties to come up with a merger plan at the earliest, say in the next 10-15 days, failing which the RBI will look at other options, including merging LVB with a bigger, stronger bank,” said a person in the know of latest developments.
The RBI, however, will give first preference to the Clix-LVB deal since this is already ongoing and due diligence is largely complete, the person said.
Today’s (October 8), non-binding offer from Clix should be seen in the context of regulator’s nudge.