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.
Fronts of IBHL/CLIX/SREI/Ousted Directors ?
A forensic study of RBI is a must.