(Note: This is an updated version of a story, published on Moneycontrol on September 26, incorporating the update by the bank to stock exchanges confirming our news break)
Shareholders of Lakshmi Vilas Bank (LVB) have rejected the proposal to appoint seven directors on the board of private sector lender including the Managing Director and CEO S Sundar, the lender said in an exchange communication on September 26.
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.
These resolutions were taken up at the annual general meeting (AGM) on September 25, which was held through videoconferencing. Other directors whose appointments were not cleared by shareholders are N Saiprasad, Gorinka Jaganmohan Rao, Raghuraj Gujja, KR Pradeep, BK Manjunath and YN Lakshminarayana Murthy.
Since the appointment of statutory auditor is opposed, the appointment of the branch auditor is also opposed.
Moneycontrol first reported this story on Saturday evening that said a section of shareholders has voted against the appointments of seven directors and auditors.
“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 on condition of anonymity.
Shareholders have rejected the appointment of directors at a time the bank is going through a major financial crisis on account of deterioration of asset quality and lack of capital. 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.
The latest development at the AGM adds to the bank’s woes.
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.
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.