Four months after the Reserve Bank of India (RBI) rejected the proposed merger between Lakshmi Vilas Bank and Indiabulls Housing Finance, at least two new suitors have emerged for the ailing Chennai-based private sector lender, sources with knowledge of the matter told Moneycontrol. A third player, a private sector bank, is also said to be interested in LVB.

“This deal is being supervised by the RBI which wants to find a suitable white knight for Lakshmi Vilas Bank. Indostar Capital Finance, which is backed by Everstone Capital and recently struck a fund infusion deal with Canada’s Brookfield, and DBS India are amongst suitors eyeing the acquisition of a majority stake in Lakshmi Vilas Bank," said a source.

“Lakshmi Vilas Bank requires a capital infusion of at least Rs 2,000-Rs 2,500 crore to maintain regulatory norms. The regulator is likely to meet later this month, review the multiple suitors and take a call on the road ahead,” added another source.

“For DBS Bank India, which has focused chiefly on its digital strategy, this deal can fetch it a geographic footprint, chiefly in the south. IndoStar Capital Finance can build its book via the proposed deal,” said an investment banker who closely tracks the sector.

The road so far

Indiabulls Housing Finance and Lakshmi Vilas Bank had announced their merger in April 2019. But the move was blocked by the RBI in October 2019. “RBI informed that the application for voluntary amalgamation of lndiabulls Housing Finance and lndiabulls Commercial Credit with Lakshmi Vilas Bank cannot be approved,” Lakshmi Vilas Bank said in a regulatory filing.

The bank did not reveal the reason cited for the regulator’s decision.

Prior to the decision, the RBI had put Lakshmi Vilas Bank under the Prompt Corrective Action (PCA) framework due to a sharp rise in non-performing assets (NPAs), insufficient liquidity to manage risks and negative returns on assets for two consecutive years. The PCA is meant to improve the performance of weak banks and not impact their day to day operations.

LVB: A closer look

The current m-cap of Lakshmi Vilas Bank is Rs 513 crore. The promoters hold 6.78 percent stake. Indiabulls Housing Finance (4.99 percent), PE fund Jupiter Capital Private Ltd (1.08 percent), Srei Infra Finance (1.92 percent), Capri Global Holdings Pvt Ltd (2.62 percent) and LIC (1.62 percent) are some of the shareholders in the public category.

The bank’s net loss widened at Rs 357.17 crore for the quarter ending September 30. It had clocked a net loss at Rs 132.30 crore during the year-ago period.

For the six month period ending September 30, net loss was at Rs 594.42 crore as against Rs 256.17 crore in the same period last year. Total income for the July-September quarter was at Rs 665.33 crore as against Rs 800.50 crore, the bank said.

The bank’s gross advances as on 30th June 2019 were to the tune of Rs 20,556 crore, with net interest income at Rs 123 crore. Its total deposits were pegged at Rs 28,980 crore.

Lakshmi Vilas Bank operates in the retail, mid-market and corporate space. As of June 30, 2019, the operations were spread over a network of 569 branches (including seven commercial banking branches and one satellite branch) and 5 extension counters, supervised by 7 regional offices.

While the bank has a significant presence in Tamil Nadu, it is also present in 16 states and 3 union territories. It has 32 “B” Category Branches and 1047 ATMs according to its website.

The suitors for LVB

DBS Bank India is the wholly-owned subsidiary of Singapore headquartered DBS Bank which has been present in India for 25 years. As of March 2019, it operated in 12 cities: Delhi, Mumbai, Bengaluru, Chennai, Kolkata, Pune, Nashik, Surat, Kolhapur, Salem, Cuddalore and Moradabad.

Recently, Everstone backed Indostar Capital Finance announced a Rs 1,450 crore fund infusion by Brookfield Business Partners, together with its institutional partners to pick up a 40 percent stake in the company. Brookfield will become a co-promoter as part of the deal.

In response to an email query from Moneycontrol, a DBS India spokesperson said, “ as a matter of policy, we do not comment on such matters.” IndoStar Capital Finance declined to comment on speculation.

Moneycontrol is awaiting an email response from Lakshmi Vilas Bank. This article will be updated when the bank responds.

Source: moneycontrol

First Published:Feb 6, 2020 8:21 PM IST