Billionaire Uday Kotak-led Kotak Mahindra Bank is keen to play the white knight and rescue the fund-starved Chennai-based Lakshmi Vilas Bank (LVB) as part of a proposed transaction under the supervision of the Reserve Bank of India (RBI), multiple sources have told Moneycontrol.

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“Kotak Mahindra Bank is a late entrant in the race for Lakshmi Vilas Bank and is evaluating the acquisition of a majority stake. It has joined other strategic and private equity suitors,” one of the sources said.

The bank submitted a proposal for Lakshmi Vilas Bank to the RBI, which has held discussions with other interested parties as well, another source said. “If the deal fructifies, it can further bolster Kotak Mahindra Bank’s presence in South India,” the source added.

Moneycontrol was the first to report on February 6 that DBS Bank India, Indostar Capital Finance, which is backed by Everstone Capital and recently struck a fund infusion deal with Canada’s Brookfield, and a private sector lender had joined the race for Lakshmi Vilas Bank. Other reports named Singapore’s Temasek and US-based Tilden Park as potential suitors.

Kotak Mahindra Bank declined to comment to a query from Moneycontrol. Lakshmi Vilas Bank is yet to respond and the article will be updated once the reply comes in.

The road so far

Indiabulls Housing Finance and Lakshmi Vilas Bank announced their merger in April 2019 but the move was blocked by the RBI in October.

“The 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 decision.

The RBI had earlier put Lakshmi Vilas Bank under the Prompt Corrective Action (PCA) framework following a sharp rise in its non-performing assets (NPAs), insufficient liquidity and negative returns on assets for two consecutive years.

The PCA is meant to improve the performance of weak banks and protect their day-to-day operations.

LVB: A closer look

“We require about Rs 1,500 crore to Rs 2,000 crore to improve our loan book and operations,” S Sundar, interim managing director and CEO, Lakshmi Vilas Bank, said on February 14.

The market cap of the beleaguered bank is around Rs 456 crore and the stock has plummeted by 65 percent in the last six months.

The promoters hold a 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.

In the December 2019 quarter, the bank’s net losses narrowed to Rs 334 crore from Rs 357 crore a year ago and from Rs 456 crore in the previous quarter. But the asset quality and core capital base were far below stable. The capital adequacy ratio under Basel-III stood at a low 3.46 during the December quarter, more than halving from 7.57 a year ago, and gross NPA ratio as a percentage of total advances improved to 21.25 percent from 23.27 percent.

Capital adequacy ratio is the ratio of a bank’s capital to its risk and is a measure of the profitability of operations. Basel-III norms put the minimum capital adequacy ratio at 8 percent.

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

While the bank has a significant presence in Tamil Nadu, it is also present in 16 states and three union territories. It has 32 “B” category branches and 1,047 ATMs, according to its website.

(Source: Moneycontrol.com)

First Published:Mar 9, 2020 4:03 PM IST