CARE Ratings downgrades LVB debt instruments over plunge in net worth

Development follows Brickwork Ratings downgrade of long-term bonds of about Rs 50 cr and LVB receiving an indicative non-binding offer from Clix Group

CARE Ratings has downgraded Lakshmi Vilas Bank (LVB)'s tier-II bonds totalling Rs 618.70 crore, citing a sharp decline in net worth caused by losses in FY20 and in Q1 of FY21.

The development comes two days after Brickwork Ratings downgraded the lender's debt to 'BWR B+'/ Credit Watch with negative implications for the lender's long-term bonds of Rs 50.50 crore, and a day after LVB received an indicative non-binding offer from the Clix Group.

LVB has reported a capital adequacy ratio (CAR) and Tier-I CAR of 0.17 per cent and -1.83 per cent (negative), respectively, as on June 30, 2020 (1.12 per cent and -0.88 per cent as March 31, 2020) as against the regulatory requirement of 10.875 per cent and 8.875 per cent.

The ratings continue to derive strength from LVB's long-standing operational track record and its established presence in southern India, the rating agency said in a note.

The ratings are constrained by LVB's regional nature of operations, weak asset quality parameters, weak capitalisation levels and continuation of losses in Q1 FY21. The rating also takes note of decline in total business of the bank due to capital constraints and the recent changes in the board, according to CARE Rating.

“In view of current capital adequacy levels, timely mobilisation of capital to augment its CAR is critical in the near term. The negative outlook on rating reflects the likely continuation of negative networth in view of delay in mobilising fresh capital. Timely mobilisation of significant amount of equity capital is critical to improve capital adequacy levels,” CARE said in its rating review.

The development comes after series of development starting September 25 when the annual general meeting, shareholders ousted seven directors and statutory auditors of the bank, forcing RBI to appoint a committee of directors for management of day-to-day operations. LVB is currently in talks with Clix Group for a merger. On Thursday the Bank said it has received an indicative non-binding offer from the Clix Group.  Officials from the Bank said that this is the first time the Bank has received an offer officially, while the last one was only Letter of Intent (LOI).

The Bank said that further to the process of considering and evaluating the proposed amalgamation with Clix Capital Services Private Limited (Clix Capital), Clix Finance India Private Limited (Clix Finance) and Clix Housing Finance Private Limited (Clix Housing") (collectively, the Clix Group), the Bank has received an indicative non-binding offer from Clix Group.