Cash-Starved Lakshmi Vilas Bank Will Not Fail, Says Founder

Lakshmi Vilas Bank Ltd., the capital-starved Indian lender whose shareholders ousted its chief executive officer, will meet its obligations and hasn’t seen deposit outflows, according to its founder.

The Mumbai-listed lender is working to accelerate a proposed merger with private equity fund Aion Capital-backed Clix Capital Ltd., K.R. Pradeep said in a phone interview Wednesday. Pradeep holds 4.9% in LVB and was among seven directors who were ousted on Saturday.

“The Clix deal is very much on the table,” Pradeep said. “There is no case for LVB to fall.”

LVB’s shares fell about 7% on Wednesday. LVB’s troubles come just months after the rescue of larger private-sector peer Yes Bank Ltd. in what was India’s biggest bank bailout. That shook confidence in smaller lenders.

In the absence of a CEO, the lender has appointed executives to liaise with Clix Capital to hasten the talks, Shakti Sinha, one of Lakshmi Vilas’ board members overseeing the rescue efforts, said by phone.

“Clarity will emerge in the coming weeks,” Sinha said, adding that there have been no “exceptional outflows” of deposits so far.

LVB’s problems mounted after the regulator in October 2019 rejected the bank’s proposal to merge with shadow lender Indiabulls Housing Finance Ltd.

The rejection was the “turning point” for perceptions of LVB’s riskiness, Pradeep said. Even so, LVB’s deposits rose to Rs 22,000 crore ($3 billion), Pradeep said, from Rs 21,440 crore at the end of March. The bank has Rs 3,000 crore of surplus funds that it has been parking with the Reserve Bank of India through daily reverse repos, he added.

LVB is looking to raise about Rs 3,000 crore by selling as much as a 49% stake to Clix Capital and a follow-on public issue or rights issue, Pradeep said. A valuer will be appointed soon to decide the share-swap ratio with Clix, and once the board approves, regulatory approval will be sought, he said. LVB had set Oct. 15 as the deadline for the process before directors were ousted, Pradeep said.

Business Standard reported on Wednesday that the RBI might ask state-run lender Punjab National Bank to take over LVB. Punjab National Bank denied the report, in an exchange filing.

“There is no liquidity problem in LVB. We have 260% liquidity coverage ratio versus an 80% requirement,” Pradeep said. “We have sufficiently provided for bad loans and we have not seen any deposit outflow. We will not default.”


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