The 100-year-old private sector Lakshmi Vilas Bank (LVB) is now in talks with other investors to raise additional capital of Rs 1,000 crore after signing a merger agreement with Click Capital about a month ago. Bank’s CEO S Sundar has given this information. The bank is looking at various options to strengthen its capital adequacy ratio. The bank will receive Rs 1,900 crore of capital from the merger agreement with Clix Capital, a non-banking financial company backed by Ion Capital.
LVB Managing Director and CEO S.K. Sudar said in a special conversation with PTI-Bhasha that the bank needs capital to grow and earn profits. “We got clicks, they showed interest in merging with the bank.” The advantage in this is that they are in a surplus position in terms of capital, whereas we have a shortage of capital.
45-day maximum time limit
He said, “We need capital and they have surplus capital.” So I found it better aligned. This is better in the sense that they have a surplus capital of about Rs 1,900 crore. Clicks are bringing with it assets worth around Rs 4,500- 4,600 crore, out of which Rs 1,900 crore is the shareholders’ fund.
The total capital adequacy ratio of LVB as per Basel-III guidelines stood at 1.12 percent as of 31 March 2020 while at 3.46 percent as of 31 December 2019. Established in the year 1926, the bank has raised only Rs 2,002 crore of equity capital during the last five years.
Profit after losses for ten consecutive quarters
The bank has reported a net profit of Rs 92.86 crore for the quarter ended March 2020. Earlier, the bank was incurring losses for ten consecutive quarters. The Reserve Bank had put it under fast corrective action (PCA) in September 2019. As a part of this action, the bank has been asked to bring in additional capital, no further lending to companies and reduce the non-performing amount (NPA) and increase the provision coverage ratio to 70 percent.