In a sudden move, the stakeholders of Lakshmi Villas Bank disapproved of seven board members from continuing during the Annual General Meeting of the bank. The stakeholders have sought to remove the board members, including that of S Sundar, the MD, and CEO whose appointment RBI had recently cleared. LVB was founded in 1926 by seven progressive businessmen in Karur under the leadership of V S N Ramalinga Chettiar and had expanded into 566 branches, and 918 ATMs in 19 states and 1 union territory.
The other disapproved members of the board are N Saiprasad who acts as the non-executive & nonindependent director, Gorinka Jaganmohan Rao a non-executive & non-independent director, Raghuraj Gujjar who holds the rank of non-executive & non-independent director, K R Pradeep who is a non-executive & non-independent director, B K Manjunath a non-executive & independent director and Y N Lakshminarayana Murthy, non-executive & independent director.
The vote of the stakeholders of the bank is against the promoter KR Pradeep, and persons long associated with him on the board. According to reports, entities which had bought into the bank’s QIP a year ago, have voted against the erstwhile promoter and his team. For the Reserve Bank of India, this is a new problem as having no identifiable management now and the regulator may have to step into the vacuum. After the sudden move, all that is left are three independent directors, namely, Meeta Makhan, Shakti Sinha, and Satish Kumar Kalra who would manage the day-to-day affairs of the bank.
However, the recently amended Banking Regulation Act adds new powers into the hands of the Reserve Bank of India to push for a merger. Already there have been talks about the merger of the bank LVB with AION-backed Clix Capital. Clix Capital, which was founded by Pramod Bhasin, who was also the former head of GE Capital in India had initiated due diligence of the bank ahead of a merger.
The Reserve Bank of India had earlier rejected LVB’s earlier proposal to merge with Indiabulls Housing Finance. LVB has been facing lending restrictions for over a year from RBI under its prompt corrective action after executives came under probe for fraud in respect of fixed deposits of Religare Finvest. Therefore, they are in need of an investor to manage the bank.
Lakshmi Villas Bank, after the sudden move on Friday, contacted investors on Sunday to assure them that their liquidity situation was comfortable. They also assured their depositors that their nominees are safe. According to reports the merger with Clix Capital is en route. As of now, a statement from the bank informs that Makhan will head the three-member committee.
The statement also ensured a comfortable liquidity position of the bank as of date with a Liquidity Coverage Ratio (LCR) of over 250% against the minimum 100 % required by RBI. They also stated that besides existing business, the Bank will continue its focus on capital-light loans.
The troubles of the bank started as it turned to focus to lend to large businesses from SMEs. They sanctioned loans of nearly ₹ 720 crores to the investment arms of Malvinder Singh and Shivinder Singh, former promoters of pharma major Ranbaxy and Fortis Healthcare, against fixed deposits (FDs) of ₹ 794 crores made with the bank in 2016 and 2017 affected the bank. The Delhi branch of LVB even got sued by Religare as the bank invoked the FDs to recover the loans.
The bank’s gross non-performing asset of the bank went from 2.67% in 2017 to 15.30% in 2019 to 25.39% in March 2020. Deposits shrunk from ₹ 31,000 crore to ₹ 21,000 crores during the same time frame. The bank was also put into Prompt Corrective Action of the Reserve Bank of India in September 2019. Due to the bank’s deterioration, several directors parted their ways in the last few years.