Lakshmi Vilas Bank (LVB) may be able to get Rs 1,200- Rs 1,500 crore of investment from AION Capital-backed NBFC Clix Capital, if the proposed transaction goes through, people aware of the matter told CNBC-TV18.

“We are at a very early stage of the deal right now. We have been talking for a while, due diligence has to be completed. It will take at least a quarter or more before we can submit any proposal to the RBI,” said a person directly involved in the transaction on the condition of anonymity. This person indicated that the investment size may be around Rs 1,500 crore or thereabout.

The private sector lender today said that it had received a preliminary, non-binding letter of intent (LoI) from Clix Capital Services Private Limited & Clix Finance India Private Limited. The bank said this proposal is subject to completion of due diligence and will be subject to regulatory and other customary approvals.

Another person familiar with the transaction said, “Clix is looking at majority control, but ultimately everything will depend on how the deal pans out, and what RBI does or doesn’t allow.”

The deal proposal comes amid the bank’s attempts to raise capital to meet regulatory requirements. In September of 2019, the Reserve Bank had initiated Prompt Corrective Action (PCA) against Lakshmi Vilas Bank due to high level of bad loans, insufficient capital to risk-weighted assets ratio (CRAR) and common equity tier-1 (CET 1), negative RoA for two consecutive years and high leverage.

LVB reported gross non-performing assets of over 23 percent, and net non-performing assets of over 9.8 percent as of December 2019. It capital adequacy ratio also stood at 3.46 percent as of December 2019, much lower than the minimum regulatory requirement of 9 percent.

This is yet another attempt by Lakshmi Vilas Bank to raise capital after its proposed merger with Indiabulls Housing Finance was turned down by the regulator in October last year. The reason for the rejection of the Indiabulls Housing deal was not publicly disclosed.

While due diligence and agreement between the two parties are critical to this deal closing, RBI’s decision in the matter is the key challenge. Ultimately, the bank will require RBI’s nod to be able to close the transaction.

Currently, RBI rules do not allow a financial institution to hold more than a 10 percent stake in a private bank. However, it does make exceptions in special situations. For instance, Catholic Syrian Bank is the majority held by Fairfax Financial Holdings. If this deal goes through, Lakshmi Vilas Bank will be the second exception to the private bank ownership rules.

Gurugram-based Clix Capital, a digital, SME lending platform is 85 percent owned by AION Capital. It was launched after acquiring GE Capital’s commercial lending and leasing business, with AION Capital largely funding the buyout. AION Capital, in turn, is a joint venture between US-based private equity major Apollo Global Management and ICICI Venture.

First Published:Jun 15, 2020 6:27 PM IST