Lakshmi Vilas Bank may decide on proposed merger with Clix on Saturday

Capital-starved Lakshmi Vilas Bank (LVB) is expected to decide on the proposed merger with Clix Capital and its affiliates on November 7, when its board would meet to declare the September quarter results. “Both parties are keen on merger, though they differ on valuation,” said a person closely working on the merger.

The ongoing litigation with Religare Finvest, the non-banking finance arm of Religare Enterprise, has allegedly become a bone of contention. With a potential liability of Rs 750-800 crore, sources say Clix Capital’s stand on the matter would be crucial to finalising the merger valuation. Two former LVB employees have been arrested in this case.

On September 29, Business Standard had reported that Clix Capital would seek indemnity for its directors from litigation if the merger were to go through. “Other than the Religare issue, there are no major differences between Clix and LVB,” said the source quoted above. Apparently, a significant portion of due diligence has been completed and both parties have ironed out their differences.

Once an agreement is reached on the Religare Finvest issue, the two firms would arrive at a valuation. With Clix’s net worth at Rs 1,300-1,500 crore and LVB’s market capitalisation at Rs 525 crore, the swap ratio works to about 3:1; more in favour of Clix Capital. “At these valuations, representatives of LVB feel its banking licence and branch strength have not been factored in,” said another person aware of the development.

With LVB presently not having an exclusive agreement with Clix on the merger, sources say the bank does not have more time for deliberations.

In fact, with the Religare Finvest exposure once again turning contentious, the proposed rights issue may be halted till the bank decides on the merger. “If a potential investor is wary of litigation, even the existing investors may not want to pump in more capital at this stage,” said another source.

In a related development, veteran banker Avtar Monga is set to join the bank as president. Monga was earlier an executive director at IDFC Bank (now IDFC First Bank). He has also headed Bank of America’s Global Delivery Centers of Expertise and was part of GE Capital.