Lakshmi Vilas Bank (LVB) and Clix Group, which were in advanced talks for a potential merger, had reached the final stage of negotiations and were even planning to close to the deal on October 23, said KR Pradeep, former promoter of the bank.
But delays derailed the plan and subsequently the RBI lost patience, Pradeep said.
“We were hoping to close the Clix deal on the day of Saraswathi Pooja (October 23). The deal was almost through. The covenants were ready to be signed,” Pradeep told Moneycontrol in an exclusive chat on Tuesday. “I wished to go back home that day with the satisfaction that the Rs1,900 crore from Clix would help our bank retain its identify,” Pradeep added.
Following the developments at the bank’s annual general meeting (AGM), the new top management at LVB and Clix couldn’t complete the process in time, the former promoter said. “This caused the delay and ultimately, the RBI lost patience. They pushed for the DBS deal,” Pradeep added. Seven LVB directors, including Pradeep and the bank's CEO, were ousted by shareholders at the AGM on September 25.
Promoters hold a 6.8 per cent stake in LVB.
Pradeep said LVB’s previous management was also confident about the success of a planned follow-on public offer.
“The planned FPO of LVB was supposed to open on October 17 and would have helped the bank raise Rs 800-1,000 crore by then. This money, along with the Clix’s contribution, would have saved the bank," Pradeep said.
On November 17, the government announced the amalgamation of DBS wit LVB putting an end to the prolonged uncertainty over the Chennai-based bank’s future. This was after the financials of the bank deteriorated sharply. LVB had posted at least ten quarters of losses and NPAs had increased substantially.
The LVB-DBS merger came into effect from November 27. The entire equity capital of the bank was written down along with Tier-II bonds as part of the scheme, following which some investors moved court.
The Clix Group, promoted by Pramod Bhasin, was in advanced talks with LVB for a significant stake. On October 8, LVB said it had received an indicative non-binding offer from Clix Group for the proposed merger, fuelling hopes of survival of the bank. But, the deal ultimately didn’t happen as the RBI wanted an early resolution.
On September 15, Lakshmi Vilas Bank had said the mutual due diligence process for merger with the Clix Group was substantially complete and both parties were 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.
Following the ouster of directors at the AGM, the RBI appointed a three member committee of directors (CoD) to run the day-to-day operations of the bank.
LVB-DBS cultural disconnect
Both LVB and DBS are culturally different, Pradeep said. The average age of LVB’s senior management is 45-55, while DBS has a much younger team. Also, the LVB focus has been always on rural clientele, particularly, small and medium enterprises, which is not the stronghold of DBS, the former promoter said.
“There is a huge cultural disconnect between LVB and DBS. LVB is a traditional bank. The average age of our employees, the category of customers we have been doing business with and the traditional values we preserve — all are different from a foreign bank like DBS,” Pradeep said.
“LVB was a bank for Bharat. DBS may become a bank for India. Bharat's loss will be India's gain in that sense," Pradeep said.
Earlier, Moneycontrol had reported that DBS had originally approached LVB in 2018 to acquire a 50 per cent stake in the bank for more than Rs100 per share. The RBI didn’t clear the deal then because DBS sought exemption from stake dilution.
DBS, in a statement on Monday, said the bank is working closely with LVB colleagues to integrate LVB’s systems and network into DBS over the coming months. Once the integration is complete, customers will be able to access a wider range of products and services, including access to the full suite of DBS digital banking services, which have won multiple global accolades.
DBS Bank India is well capitalised and its capital adequacy ratios (CAR) will remain above regulatory requirements even after the amalgamation, the bank said. Additionally, DBS Group will inject Rs 2,500 crore into DBIL to support the amalgamation and for future growth. This will be fully funded from DBS Group’s existing resources, the bank said.
Following the writedown of equity and Tier-II bonds, some LVB investors have moved various courts to challenge the regulator’s decision. This includes Pradeep, institutional investors such as Indiabulls, AUM Capital and several other small investors. While both the Bombay and Madras High Courts have refused to stay the merger, the Madras High Court has issued some instructions giving relief to LVB’s investors.
In its interim order last week, the Madras HC said that no further prejudicial action should be taken against the LVB shareholders by the respondents. It also asked DBS Bank to furnish an undertaking that in case the Court concludes and directs it to provide compensation to LVB, it would pay the same.
Besides, as security, DBS Bank should create a separate reserve fund in its books of account to the extent of the face value of shares of the transferor company (LVB) and maintain the same, subject to further orders, the Madras HC said. A bench comprising justices Dr Vineet Kothari and MS Ramesh issued the interim directions.
The Court was hearing a petition filed by AUM Capital Market Pvt Ltd., one of the investors. "...completely reducing the shares is not an exercise which has happened in the public domain and the shareholders do not appear to be aware of the exact reasons why this is so," the Court observed.
The DBS-LVB merger is the first instance in India where a foreign bank has been invited by the RBI to rescue a domestic private bank.