At the latest Annual General Meeting of Lakshmi Vilas Bank, on Friday, shareholders have disapproved seven of the board members from continuing. These include S Sundar, the MD and CEO whose appointment RBI had recently cleared. Also disapproved are:

N Saiprasad, non-executive & non independent director

Gorinka Jaganmohan Rao, non-executive & non-independent director

Raghuraj Gujjar, non-executive & non-independent director

K R Pradeep, non-executive & non-independent director

B K Manjunath, non-executive & independent director

Y N Lakshminarayana Murthy, non-executive & independent director

The vote appears to be against promoter KR Pradeep, and persons long associated with him on the board. Market chatter is that entities which had bought into the bank’s QIP a year ago, have voted against the erstwhile promoter and his team. For RBI the worry is that there is no identifiable management now and the regulator may have to step into the vacuum. All that is left of the board are three independent directors and the RBI nominees.

Also Read: Lakshmi Vilas Bank seeks to reassure depositors after CEO, directors ousted at AGM

While the Clix group and Aion are doing due diligence and evaluating the option of investing, events of the weekend may make waiting costly. In its last result, the bank reported a negative tier one ratio of -1.83 percent. Tier one is pure equity capital and that is negative. It means there is no shareholder skiN in the game left in any loan. The first-quarter loss was Rs 112 crore, but FY20 losses were at Rs 836 crore. 25 percent of the loans have defaulted, though to be fair, 72 percent are provided for and hence the net non-performing assets is a more manageable 9.6 percent. COVID may have wrought more havoc.

The bank’s depositors have been voting with their feet. Deposits in the June quarter stood at Rs 21,161 cr, down 27 percent from year-ago levels and 1.3 percent from a quarter ago. The news of vacuum at the top after the latest AGM can’t be received well by depositors.

And any adverse news can worry about other old private sector bank depositors.

On the positive side it is not a huge problem- Rs 21,000 crore of deposits, of which over 30 percent would be in government securities, implies a relatively small issue for any large private bank to take over. But the RBI may have to play matchmaker or at least marriage counsellor. It may be better to act fast.

At the time of publishing, LVB has issued a statement stating that it continues to have a fully functional board including three independent directors. Till a new MD is appointed, the bank's senior management will discharge day-to-day functions. The bank has added that its liquidity position is comfortable and its LCR is at 240 percent. The bank will continue to evaluate the proposed merger with Clix group and further that mutual due diligence is substantially complete.

First Published:Sept 27, 2020 7:33 PM IST