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Denied approval for merger, Lakshmi Vilas Bank shifts focus to raise capital

FE Bureau

A day after the Reserve Bank of India (RBI) turned down its move to merge with Indiabulls Housing Finance and lndiabulls Commercial Credit, Lakshmi Vilas Bank (LVB) on Thursday put up a brave front, saying it will continue to work towards raising capital as per permitted modes in compliance with all applicable Acts and regulations. The merger proposal came at a time when LVB was saddled with high non-performing assets and unable to raise capital to stay afloat.

LVB, in a disclosure to the stock exchanges on Wednesday evening, said the RBI had informed that the bank’s application for voluntary amalgamation of Indiabulls Housing Finance and lndiabulls Commercial Credit with it can not be approved. The RBI did not cite any reason for its disapproval, according to the disclosure.

The RBI move came close on the heels of its decision on September 28 to initiate the Prompt Corrective Action (PCA) against LVB, placing it under the corrective watch to improve performance.

Just a couple of days ago before the PCA decision, the Economic Offences Wing Delhi had registered an FIR against the board members of LVB on a complaint filed by Religare Finvest (RFL) pertaining to adjustment of its deposits towards dues of RHC Holding and Ranchem.

In a press release on Thursday, LVB said it is assuring the best of services to its clients, while committing towards growth and creating value for its stakeholders.

LVB with legacy of more than nine decades, a strong/loyal client base and a deposit book of close to Rs 26,000 crore has served three generations of clients.

The RBI has initiated the PCA against LVB taking into account its high net NPA, insufficient CRAR (capital to risk weighted asset ratio) and CET 1 (common equity Tier 1), negative RoA for two consecutive years and high leverage based on the on-site inspection under the risk- based supervision carried out for the previous fiscal.

The PCA was initiated when the lender had been in the process of securing approvals from the authorities for merger with Indiabulls Housing Finance.

The proposed plan was to merge Indiabulls Housing Finance and its wholly owned subsidiary Indiabulls Commercial Credit with LVB. IBHFL was to hold around 90.5% of the post-merger enhanced equity capital of the merged entity, while shareholders of LVB were to hold around 9.5%.

Parthasarathi Mukherjee had resigned from his post of MD & CEO of LVB in August this year amid merger talks.

The net loss of LVB widened to Rs 237.25 crore during the quarter ended June 30, 2019, compared with a net loss of Rs 123.86 crore during the same quarter last year. The total income declined 14% during the period to Rs 677.17 crore, against Rs 787.5 crore in the year-ago period.

Gross NPAs as a percentage of gross advances stood at 17.30% (Rs 3,556.57 crore) in Q1, compared with 10.73% (Rs 2,804.71 crore) in the same period of the previous year. Net NPA grew to 8.30% (Rs 1,539.40 crore), compared to 5.96% (Rs 1,478.09 crore) in the same period last year.