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Lakshmi Vilas Bank has enough liquidity to pay back its 20-lakh depositors and will complete the proposed merger with the Singaporean lender DBS before the deadline, the Reserve Bank-appointed administrator said on Wednesday.
The Reserve Bank of India on Tuesday superseded the Lakshmi Vilas Bank board and placed the 94-year-old Chennai based lender under a 30-day moratorium ending December 16, after its net worth turned negative and a quarter of its advances became dud loans and it failed to get capital despite many attempts.
The regulator also appointed the former non-executive chairman of Canara Bank TN Manoharan as the administrator of the crippled private sector lender for the 30-day moratorium period.
LVB is the third bank to be placed under moratorium since September last year after the cooperative bank PMC in 2019 and private sector lender Yes Bank this March.
While Yes bank has successfully been revived under the guidance of State Bank, the PMC resolution is still a far cry.
"We're closely monitoring the availability of cash in currency chests and also coordinating with the regulator to ensure that at no branch - there will be any shortage of currency even if a significant number of depositors turn up to withdraw the permissible amount.
"We have the full backing of the regulator to ensure that there is no cash shortfall. Nobody needs to get panicky about the safety of their money," Manoharan told reporters in a concall that lasted over 90 minutes.
Reacting to the development the LVB counter tanked 20 per cent to Rs 12.40 on the BSE against the benchmark Sensex gaining 0.52 per cent to close above the 44,000-mount for the first time.
Manoharan said LVB has Rs 20,070 crore in deposits as of today, of which Rs 14,000 crore are term-deposits and Rs 6,070 crore savings and current account deposits from 20-odd-lakh depositors.
Its loan book stood at Rs 17,000 crore, Manoharan said, adding while deposits have come down to Rs 20,070 crore as of today from Rs 20,973 crore as of September-end, advances have increased to Rs 17,325 crore from Rs 16,622 crore as of September-end.
Manoharan also said that since last evening when the moratorium was clamped the bank saw only Rs 10 crore withdrawal through ATMs.
"There is no run on the bank and the bank has enough liquidity. No depositor needs to get worried about the safety of the money," he reiterated.
When asked what makes him so confident of the merger getting through as many institutional investors have already threatened to challenge the RBI proposal to completely write off the value of all LVB shares to zero upon merger and an automatic delisting, Manoharan said the RBI will listen to every stakeholder before coming out with the final merger scheme on November 20 as the current one is only a draft.
"The regulator will hear everybody concerned before issuing the final merger scheme. Also, we will not bypass any regulations. Every regulation will be complied to," he added.
Retail investors own 45 per cent of the bank now but according to the present scheme, stand to lose every penny of their investment.
With 4.99 per cent stake, the single largest institutional investor is Indiabulls Housing Finance with which it tried to merge in April 2019 but was scuttled by the RBI in October that year.
Then in June this year, it announced a merger scheme with a small-time NBFC Clix Captial group but that too failed, leading to the current development.
Other institutional investors include Prolific Finvest (3.36 per cent), Srei Infrastructure Finance (3.34), MN Dastur & Co (1.89), Capri Global Holdings (1.82), Capri Global Advisory Services (2), Boyance Infrastructure (1.36) and Trinity Alternative Investment Managers (1.61).
On why the moratorium was clamped even as there is no run on the bank as yet and also despite the new banking regulation law allows the RBI to supersede a bank without a moratorium, he said, "let's not question the judgment of the regulator who has considered all the right options before this exercise".
Manoharan listed out his top four priorities as assuring depositors that their money is absolutely safe, assure all the 4,100 employees that their jobs and salaries are fully secure, get the bank back to business and finally to steer the merger with DBS India.
LVB reported a net loss of Rs 836.04 crore in the year to March 2020.
The bank had recorded a net loss of Rs 396.99 crore in the September quarter this fiscal, up from Rs 357.17 crore a year ago.
Net NPAs or bad loans stood at 7.01 per cent of the net loans in September 2020, as against 10.24 per cent in March 2020 and 10.47 per cent in September 2019, while its gross NPAs stood at over 24 per cent in Q2.
Manoharan said the bank has no tier 1 debt, while its tier II debt stands at Rs 368 crore as of now.
If the merger goes through, DBS Group will pump in an additional Rs 2,500 crore into the DBS India which will be pushed into the core capital of LVB upfront.
That apart DBS India has a regulatory capital of Rs 7,193 crore, which will ensure that the merged entity will have common capital of 12.15 per cent as against minus 1.9 per cent for LVB now.
LVB's troubles started after it shifted its focus to lending to large businesses from SMEs. Its loans of nearly Rs 720 crore to the investment arms of Malvinder Singh and Shivinder Singh -- former promoters of pharma major Ranbaxy and Fortis Healthcare -- against fixed deposits of Rs 794 crore made with the bank in late 2016 and early 2017, also turned the bank turtle.
LVB had sought the RBI's nod to amalgamate itself with Indiabulls Housing Finance in May 2019 to meet its capital requirements. However, the deal could not get regulatory approval because of the RBI's aversion to let realty-focused entities into commercial banking. In June 2020, the bank had signed a preliminary, non-binding letter of intent with Clix Group for a possible merger.
LVB was started by seven businessmen of Karur under the leadership of VSN Ramalinga Chettiar in November 1926 and today it has 566 branches and 918 ATMs across 19 states and one union territory.