Coup at Lakshmi Vilas Bank: 7 Directors Ousted, in an Open Snub of RBI
In a coup at the annual general meeting (AGM) on 25th September, a section of shareholders of Lakshmi Vilas Bank (LVB) ousted seven directors including managing director and chief executive officer (MD&CEO) S Sundar (appointed as the interim MD in January), as well as the statutory auditor and branch auditors, whose appointment is approved by the Reserve Bank of India (RBI). 
 
This has triggered fresh crisis at the beleaguered LVB, which has been in the middle of merger process with PE (private equity) fund-backed Clix Capital. LVB’s influential shareholders are a bunch of non-banking finance companies (NBFCs) such as Kolkata-based Srei International, Capri Global (5%) and Indiabulls group (little less than 5%) whose own merger proposal was shot down by RBI last year. 
 
While the AGM was held on Friday, the verification of votes by a third party was completed on Saturday. The number of votes cast for defeating the resolutions was about eight crore, as against five crore votes from those who were in favour. The four resolutions which were approved had the backing of the 13 crore votes. The voting pattern indicates that a group owning eight crore shares have acted in concert. One of the directors up for appointment, but was voted against, is a former chief general manager of the RBI. 
 
Following the developments, the company secretary called a meeting on Sunday. Moneylife gathers that a committee of directors have been formed to run the Bank and they happen to be the nominees of these NBFCs. If so, it is a battle between these NBFCs and Clix Capital, which was set to acquire control.
 
But banking is a highly-regulated business and no such developments can take place without a nod from the all-powerful banking regulator. It may remembered that RBI approves the appointment of MD and statutory auditors of every bank and, therefore, perhaps, this is the first time in the history of Indian banking that shareholders have dared to throw out resolutions which had the approval of RBI.  
 
The coup has perhaps confounded RBI, which is yet to decide on the next course of action. Under the Banking Regulation Act, RBI can supersede the board and appoint its own directors. RBI needs to act fast because LVB faces liquidity problems, which can dramatically worsen if public confidence is lost which will happen if RBI is seen to be dithering.
 
A similar dithering has resulted in lakhs of depositors losing their life savings in Punjab and Maharashtra Cooperative Bank, which remains in a limbo, even though it had terrific intangible assets such as brand name, loyal customers and well-trained staff.
 
LVB, a 95-year old community bank with 560 branches across 15 states, has attracted a lot of investor interest, even while it has been incurring losses for the past 10 quarters. After RBI rejected Indiabulls' attempt to acquire the Bank, it aske for a prompt corrective action (PCA) in September 2019. This requires the bank to bring in additional capital while restricting its lending options. 
 
Clix Capital, founded by Pramod Bhasin (earlier with GE Capital), and Anil Chawla, is controlled by AION Capital Partners, a Mumbai-based private equity house, which has a 85% stake in Clix. AION itself is a partnership between the Apollo Global Management, a giant New York-based fund with more than $400 billion in assets, and ICICI Venture.
 
Moneylife gathers that the credit losses in LVB are so high that even Clix Capital’s fund infusion would not have been enough. Now that Clix deal has been torpedoed will RBI will sit idly and let the Bank slide further?
 
LVB on Sunday evening ssued a press release and notification to the stock exchanges signed by independent director Shakti Sinha, mentioning that the reappointment of seven directors was not approved at the AGM but it continues to have a “fully functional Board of Directors including three independent directors.”
 
Here is what the release says:
 
"The Bank's liquidity position as on date is comfortable, with Liquidity Coverage Ratio (LCR) is in excess of 250% about 262% against minimum 100 % required by RBI. The bank has no asset-liability mismatch.
 
"All the existing employees of Bank will continue to be in full service as usual, and remain ever committed as usual to serve customers.
 
"The Bank will continue the process of considering and evaluating the proposed amalgamation of the 'Clix Group' ( which includes Clix Capital Services Private Ltd., Clix Finance India Pvt. Ltd., and Clix Housing Finance Pvt. Ltd.) with the Bank, and as was previously informed on 15th September 2020.
 
"The shareholders have approved an increase in authorized capital to Rs1000 crore subject to RBI approval and it plans to raise further capital raising and is considering various options.
 
"The existing senior management team with the residual board will run the bank until a new managing director is appointed. It will continue cost reduction measures."
 
UPDATE:
RBI has approved that the day-to-day affairs of Lakshmi Vilas Bank will be run by a committee of directors (CoD) comprising three independent directors, the Bank says.
 
In a regulatory filing, LVB says the CoD will exercise the discretionary powers of MD & CEO in the ad-interim which comprises Meeta Makhan, chairperson of the CoD, Shakti Sinha and Satish Kumar Kalra, both as members.
 

 

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    COMMENTS

    Newme

    4 weeks ago

    Does the RBI office has a single officer who is incharge of a particular Bank who inturn reports about that particular Bank activities to RBI mangement?

    REPLY

    cvkakatkar

    In Reply to Newme 4 weeks ago

    RBI has its Nominees on the Board - attending the Board Meetings -

    cvkakatkar

    1 month ago

    Who are these continuing Directors?
    Fronts of IBHL/CLIX/SREI/Ousted Directors ?

    krish.queries

    1 month ago

    @suchetadalal You should write a detailed story on how the individual and institutional shareholders got together to vote against the existing board and auditors. Similar template can be followed for other companies too. Top on the list would be Zee Entertainment & Essel group companies, Vedanta and all their group companies, PNB (the biggest scam bank in India), etc, etc

    krish.queries

    1 month ago

    Wish we had the ability to vote out senior officials in #RBI and various other ministries

    REPLY

    claromenezes

    In Reply to krish.queries 4 weeks ago

    Yes we should have the ability to vote the RBI manageme board! One keeps wondering how does the RBI transfer lakh crore to the Government, what is its source of income and who ultimately bears the cost of the income generated is it the account holder in the various banks??

    cvkakatkar

    In Reply to krish.queries 1 month ago

    true - Esp - the RBI Directors on Board of LVB.
    A forensic study of RBI is a must.

    pradeepbm

    1 month ago

    How safe is our money ?

    raneamrane

    1 month ago

    Very complicated issue, good lesson to RBI against it's directionless dictats.

    AIBEA Writes to RBI Governor Voicing Concern over Dhanalaxmi Bank
    The All India Bank Employees Association (AIBEA) has written to governor Shaktikanta Das of the Reserve Bank of India (RBI) expressing concern over the bank 'heading in the wrong direction' after a recent change in management.
     
    Dhanlaxmi Bank (originally Dhanalakshmi Bank) a 93-year old, small-sized private bank headquartered in Thrissur (Kerala), had turned around after RBI intervention and a change in top management sometime after the disastrous spell of 2008- 2012. 
     
    According to AIBEA’s letter of 26th September, the Bank reported profits for the past eight quarters after the previous five years of losses. Its Rs65 crore profit in 2019-20 has been the highest since its inception. However, AIBEA thinks its decision to open new branches in north-India without adequate 'control and supervision' and plans to appoint a “large number of Sales Executives and senior Executives on contractual and cost to company basis at much higher remuneration,” may place an unnecessary burden on the bank at 'this juncture',.  
     
    The AIBEA’s letter commenting on management decisions and seeking RBI intervention based on ‘apprehensions’ is rather unusual; however given the past goings on at the Bank as well as other private banks like Lakshmi Vilas Bank, this concern about depositors as well as employees may be a much-needed advance warning. 
     
    We will update this article if the management responds to AIBEA’s letter. 
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    COMMENTS

    s5rwav

    1 month ago

    Pretty Interesting Article. I am Babubhai Vaghela from Ahmedabad. Thanks.

    NBFCs in Recovery Mode but Growth Takes a Back Seat: Report
    While maintaining its negative outlook on non-banking finance company (NBFCs) including retail and wholesale and housing finance company (HFC) sectors for the second half of FY20-21 (H2FY20-21), amid COVID-19 related business disruptions, India Ratings and Ratings (Ind-Ra) feels that rhe time required for NBFC operations to return to normalcy could be prolonged.
     
    In a report, the ratings agency says, "Although the liquidity and funding environment has improved for better rated entities post July, there would be asset quality issues impacting overall profitability in FY21 and beyond. Thus, NBFCs have increased their focus on collections and have tightened underwriting standards; portfolio growth would take a back seat."
     
    "Growth in assets under management would be flattish for NBFCs (earlier estimate of 8%-10% year-on-year-yoy) and in lower single digits for housing finance companies in FY21. Capitalisation remains reasonable, given the muted growth outlook, to absorb moderate asset quality stress. As the debt moratorium was in effect during April to August 2020, the Indian securitisation market witnessed transactions getting concluded selectively," Ind-Ra added.
     
    The ratings agency expects the market to open up for a significant number of transactions, once pool delinquency data starts flowing in and stabilises, thereby improving investor confidence. On the other hand, it sees pent-up demand from investors for assets, and supply from originators for liquidity generation, driving securitisation volumes. 
     
    According to Ind-Ra, the book under moratorium has progressively declined for all segments, and collection efficiency has improved from April to August 2020. However, it says, collection levels are far lower than pre-COVID levels. 
     
    The Reserve Bank of India (RBI) has allowed lenders to restructure their book, which was not more than 30 days past due as on 29 February 2020. "The credit cost that has to be provided on the restructured book is higher of 10% or extant provisioning held on those assets. To that extent, there could be some relief on credit costs; however, slippages could be higher for certain segments, resulting into higher credit costs," it added.
     
    Ind-Ra opines the proportion of restructured book of the total assets under management (AUM) could be in high single digits. It says, some of the segments, which can witness higher asset quality pressure, are commercial vehicles (CV), real estate loans and big ticket loans to SMEs. 
     
    "Within asset classes, CV demand has dampened due to restricted movement, drying up of freight due to economic inactivity and lower freight rates, caused by COVID-19. Under-utilisation of capacity, uncertainty in drivers’ availability, higher vehicle cost post BS-VI implementation and higher upfront insurance cost have affected the unit economics of the sector. The agency has maintained a negative outlook on CV as an asset class for 2HFY20-21," the ratings agency added. 
     
    According to Ind-Ra, micro, small and medium enterprises (MSMEs), which were already facing stress because of demonetisation, goods and service tax (GST) implementation and overall macro-economic slowdown, suffered a subsequent blow due to COVID-19 in 2020. The ratings agency says it expects limited business revival for them and, hence, has maintained business loans on a negative outlook. 
     
    The debt servicing capability of tractor loan borrowers has improved because of three good consecutive harvests, favourable monsoons and increased rural expenditure outlay budgeted by the government. Hence, Ind-Ra says it has revised its outlook for tractor loans to stable for 2HFY20-21 from negative. 
     
    Collections for the microfinance sector, which had plummeted to near zero levels in April 2020, have recovered substantially, the ratings agency says. However, rising rural consumer price inflation and per capita indebtedness of borrowers could worsen the debt servicing capabilities of borrowers; and thus, has maintained a negative outlook for 2HFY21 on microfinance loans, it added. 
     
    While Ind-Ra has a negative outlook on most of the asset classes, it has maintained a stable outlook on securitisation transactions for 2HFY21 backed by home loans, vehicle loans, secured business loan (loans against property) pools, given the seasoning and credit enhancement build-up in these transactions. 
     
    On the other hand, the ratings agency has revised its outlook to negative from stable for the securitisation transactions backed by microfinance loans, unsecured business loans and construction equipment loans because of the uncertainty around slippages post-moratorium. 
     
    The regulator addressed sectoral liquidity challenges through targeted long-term repo operations (1 & 2), partial credit guarantee and emergency credit line guarantee schemes; however, the effectiveness of these schemes has been mixed. 
     
    Against this backdrop, Ind-Ra says, NBFCs’ on-balance sheet liquidity remains paramount to service their debt obligations. It says it has been closely monitoring the liquidity situation of NBFCs on a monthly basis and has opined that on-balance sheet liquidity (free cash and liquid investments) and unutilised funding lines have been adequate to cover at least three months of debt repayments on a rolling basis, without relying on collections and assuming nil disbursements.
     
    "The funding environment has improved from what it was in April and May 2020; however, mutual funds are still exercising caution in funding NBFCs. Public sector banks have lent money to NBFCs under the targeted long- term repo operations and partial credit guarantee schemes (18 months money)," the ratings agency says.
     
    Ind-Ra opines that the funding environment would remain volatile during FY20-21, and further disruption in the operating environment can make access to funds challenging for low-rated NBFCs.
     
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