Lakshmi Vilas Bank (LVB) was founded by a bunch of seven businessmen under the guidance of Sri V.S.N Ramalinga Chettiar. Their aim was to produce backing for people around their region who are engaged in the trading business, agriculture, etc. They have seen considerable growth and commenced expanding their branch beyond State.
But now LVB is capital-starved. They suffer from high bad loans and also lenders’ capital adequacy ratio had fallen below the regulatory level. Capital adequacy ratio was a piteous 3.46% in December of which Tier-I capital was a mere 1.46%. The regulatory minimum for a healthy bank is 8% and 5% respectively. The bank has been in talks with various institutional investors for the requirement of capital. Since there isn’t the other option they decided to sell a controlling stake to an outsized investor.
Last year’s financial organization of India (RBI) refused to approve a merger with Indiabulls Housing Finance Ltd. What disquieted the bank was that despite being within the Prompt Corrective Action (PCA) scheme of the RBI, its capital has seen steady erosion. The bank was placed under the PCA in September 2019, when it’s capital adequacy ratio was at 5.5%. PCA is like a treatment for a weak bank wherein its lending activities are restricted so that it conserves capital. The RBI has not revealed the explanations for denying permission to the proposed merger of Lakshmi Vilas Bank with India bulls. Housing Finance but most analysts attributed it to the regulator’s prudence of non-bank lenders with land exposure.
Troubled Lakshmi Vilas Bank got help for survival through a nonbinding letter of intent (LoI) from AION Capital-backed Clix Capital Services and Clix Finance India, a non-public equity player. Media reports have pinned the eventual stake anywhere between 45% and 65% through a merger of Clix Capital Services. The bank will get a capital infusion of ₹2,300-2,500 crore. Clix Capital and Clix Finance are said to start due diligence on LVB next week and make an accurate application to the RBI to approve the deal in four weeks.
