Lakshmi Vilas Bank: Worrying financials remind why a quick merger is the only hope

Lakshmi Vilas Bank’s (LVB) second quarter numbers remind us the sorry state of its deteriorating financials.

Gross non-performing assets (GNPAs) continue to be too high at 24.45 per cent, even the net NPAs stay too high at 7.01 per cent. The bank’s capital levels are at precarious levels.

Going by the auditors’ note, the bank's Tier 1 Capital ratio has turned negative; the overall Capital Adequacy Ratio (CAR) as per Basel Ill guidelines was at negative 2.85 per cent as of September 30.

An urgent capital infusion is the oxygen the bank desperately needs to stay alive.

The bank’s business has shrunk over the year. Total business of the bank was Rs 37,595 crore the end of September, 2020, as against Rs 47,115 crore at the end of September last year. Net Loss after tax is Rs 396.99 crore for the quarter ended September 30, 2020, as against net loss of Rs 357.18 crore for the year-ago quarter.

On the positive side, the provision coverage ratio of LVB stood at 79.66 per cent (62.28 per cent as on September 30, 2019), higher than the minimum of 70 per cent prescribed under the RBI's Prompt Corrective Action, or PCA.

The only bright spots in the LVB story are the encouraging updates given on the proposed merger with Clix Group and the recently approved rights issue proposal to raise Rs 500 crore. The merger with Clix seems to be on track.

“Despite logistical challenges arising due to the COVID-19 situation, we have made significant progress with Clix group for the proposed amalgamation of Clix Capital Service Pvt Ltd and Clix Finance India Pvt Ltd into the bank,” LVB said.

“There were minor incremental due diligence requested by Clix Group, which was completed this week. Now, the respective sides are in the process of a workable and mutually acceptable framework,” the bank added.

Further, the bank’s board has approved raising up to Rs 500 crore by way of rights issue and ICICI Securities is appointed as the merchant banker for the issue, it said.

The indications are that the merger is on course and can happen in the foreseeable future. That should offer some relief to LVB’s shareholders. “The capital requirement is a moving target. Rights issue is certainly good news, but merger is not a choice but a survival necessity,” said one of the institutional investors of the bank on condition of anonymity.