Care Ratings downgrades Lakshmi Vilas Bank’s debt instruments

Care Ratings has downgraded a slew of unsecured redeemable non-convertible subordinated lower tier II bonds already issued by Lakshmi Vilas Bank (LVB) and additional tier- I bonds that are yet to be issued by the troubled private sector lender. Majority of the ratings have been revised down to Care BB- negative (double BB minus, outlook negative) from Care BB+ negative (double B plus, outlook negative).

The revision in ratings assigned to various debt instruments of LVB to the tune Rs 618.70 crore factors in the sharp decline in the net worth due to significant losses reported in FY20 and Q1FY21. The bank reported total CAR and tier I CAR of 0.17% and (-)1.83%, respectively, as on June 30, 2020, Care Ratings said.

The ratings are constrained by LVB’s regional nature of operations, weak asset quality parameters, weak capitalisation levels and continuation of losses in Q1FY21. The rating also takes note of decline in total business of the bank due to capital constraints and the recent changes in the board. In view of current capital adequacy levels, timely mobilisation of capital to augment its CAR is critical in the near term, the rating agency said.

Brickwork Ratings (BWR) had recently downgraded the rating from BWR BB+ (credit watch with developing implications) to BWR B+ (credit watch with negative implications) for LVB’s unsecured redeemable non-convertible subordinated lower tier II bonds – Series VII (Option B) of Rs 50.50 crore.

The rating downgrade necessarily factors in the rejection of seven directors of the bank, including the interim MD and CEO, by the bank’s shareholders, its substantially weak capital position, very high levels of gross non-performing assets (NPAs) and continuous losses reported for the past 10 quarters, except Q4FY20, BWR said in a note. LVB received an indicative non-binding offer from Clix Group on Thursday, moving a step closer to the amalgamation of the group’s entities with itself.