Temasek Holdings eyes controlling stake in cash-strapped Lakshmi Vilas Bank

May rope in its banking arm DBS Bank India to co-invest

Temasek Holdings, the Singapore government’s investment company, has furthered its talks with Indian authorities to acquire a controlling stake in capital-starved Lakshmi Vilas Bank (LVB). 

According to persons aware of the development, Temasek has approached the corporate affairs and finance ministries for their approval to buy a 51 per cent stake, which will give it controlling rights in LVB. “Temasek already has an interest in several financial sector firms. Hence, it is seeking consent on whether it can take a controlling stake in one more Indian bank, which is LVB,” said one of the persons.

In the listed financial space, Temasek owns shares in HDFC Bank, while it exited Axis Bank and YES Bank last year.

Once approval from the government comes through, Temasek is expected to make a binding offer to acquire the stake. “As LVB was placed under prompt corrective action by the Reserve Bank of India in September 2019, talks with the regulator have helped the bank firm up its capital infusion structure, which will be similar to the one executed by CSB Bank (earlier Catholic Syrian Bank) in February 2019,” said a highly-placed source. 

Also, as the bank is looking at Rs 1,500-2,000 crore of capital infusion, investors looking to pump in the funds are said to be keen on taking a controlling stake.

LVB’s capital adequacy ratio stood at 3.46 per cent as of December 31, 2019, well below the regulatory level of 9 per cent and may be classified as the weakest bank in India. Its advances stood at Rs 17,535 crore and deposits at Rs 23,565 crore on this date, both of which have shrunk by over 20 per cent year-on-year.

It is understood that Temasak may initially rope in its Indian banking unit, DBS Bank India, a subsidiary of DBS Singapore, to acquire the stake in LVB. DBS Bank India was the first to remodel its operations as an Indian subsidiary in March 2019. 

In FY19, it posted a net profit of Rs 14.5 crore and its capital adequacy stood at 19.69 per cent. In December 2018, its parent company, DBS Holdings, infused Rs 1,300 crore of capital. DBS Bank India’s advances and deposits stood at Rs 18,108 crore and Rs 33,828 crore, respectively, in FY19.  In May 2016, the RBI allowed foreign banks to buy 10 per cent in Indian private banks. The circular allows foreign banks to take a higher stake in private banks in the case of restructuring of a weak bank or in the interest of consolidation in the banking sector, though subject to certain conditions.

It is learnt that DBS Bank India, which has operations across 12 cities, is exploring this regulatory leeway to acquire the stake in LVB and thereby expand its presence in the country. Apart from Temasak, Tilden Park, a US based fixed-income fund, is learnt to have shown an interest in taking a majority stake in LVB. The deal to acquire a controlling stake in LVB is learnt to conclude by June or July. 

Meanwhile, to augment its capital, LVB is also looking into the process of raising Rs 500-600 crore of interim capital from smaller private equity funds, which, according to a person closely working on the deal, may come through in a month. “As a matter of policy, Temasek does not comment on market speculation and rumours,” it replied by email. DBS Bank India did not want to comment on the development, while Tilden Park did not respond to emails sent, till the time of goingto press.