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Will PNB acquire beleaguered Lakshmi Vilas Bank?

By Dev Chatterjee & Abhijit Lele
October 08, 2020 11:34 IST
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PNB has rich experience in the integration of commercial banks.

The Reserve Bank of India (RBI) is learnt to have told state-owned Punjab National Bank to get ready to take over Lakshmi Vilas Bank (LVB) in case the beleaguered lender’s proposed transaction with Clix Capital does not materialise.

Apart from PNB, another public sector bank has been asked to look into the books of LVB.

 

According to a senior PNB official, the bank was sounded off by the RBI following the sudden turn of events, when the re-election of seven directors of LVB was rejected by its shareholders.

The RBI approved a committee of directors to run the day-to-day affairs of the bank.

PNB, the official said, had rich experience in the integration of commercial banks.

“While OBC (Oriental Bank of Commerce) and United Bank’s merger gave us a strong footing in the northern and eastern region, our bank needs to enhance its presence in South India in order to have a strong pan-Indian presence,” the official said, but added that nothing concrete had been worked out yet to merge LVB with PNB.

In 2003, PNB had taken over Nedungadi Bank, a small private sector lender from Kerala.

This gave PNB an opening into the thriving Kerala market, but the bank has limited presence in Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka.

The acquisition of LVB would fill this gap, the official said.

LVB fell into a crisis after a group of its shareholders, who were against Clix’s merger proposal, did not clear the appointment of the statutory auditor and branch auditors.

This was despite the fact that the appointment of the auditor was cleared by the RBI early this year as part of its plan to bring the bank back on track.

The shareholders also rejected the nomination of a director, who was earlier a chief general manager (CGM) of the banking regulator.

The shareholders who voted against the re-election of directors included Srei Capital, with a 3.4 per cent stake, and Indiabulls Housing Finance, which owns 5 per cent and whose own merger proposal with the bank was rejected by the RBI.

In November last year, the RBI had advised the bank to maintain provisions, on a prudential basis, to cover potential losses for the “claim against the bank not acknowledged as debt” in respect of the Religare/Ranchem exposure.

The 95-year-old Chennai-based community bank needs urgent cash infusion of at least Rs 1,000 crore to take care of its financial commitments.

The bank is facing multiple investigations following its exposure to RHC Holding and Ranchem Private Ltd, owned by the Singh brothers.

During the fiscal year ended March 31, 2018, LVB had adjusted loans worth Rs 794 crore extended to RHC Holding and Ranchem against deposits of Religare Finvest Ltd (RFL).

The adjustment was contested by RFL, and a suit was filed against the bank in May 2018 before the Delhi high court, where the matter is pending.

Meanwhile, RFL lodged a criminal complaint with the Economic Offences Wing, Delhi, against the bank.

The EOW has initiated proceedings against the bank's officials.

A charge sheet has been filed against the promoters of RFL, Malvinder Singh and Shivender Singh and a few of LVB employees.

The Enforcement Directorate has also registered a case under the Prevention of Money Laundering Act (PMLA) and issued summons to LVB officials to furnish details about the Religare transaction.

The Ministry of Corporate Affairs has directed the Serious Fraud Investigation Office (SFIO) to conduct an investigation into the affairs of Religare Enterprises Ltd.

The Securities and Exchange Board of India (Sebi) has also sought clarification on the above exposure.

The financial metrics of the bank have deteriorated gradually.

Its deposits fell 26.76 per cent to Rs 21,443 crore as of March 31, 2020, and it posted an operating loss of Rs 15.46 crore in FY20.

The net loss for the year, after provisions and taxes, amounted to Rs 836 crore as against a net loss of Rs 894 crores recorded in 2018-19.

In the meantime, Clix Capital has insisted that its directors should be indemnified from any future claims made against the bank after the merger.

Photograph: Francis Mascarenhas/Reuters

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Dev Chatterjee & Abhijit Lele in Mumbai
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