Lakshmi Vilas Bank board meeting on Oct 15 to consider rights issue

Sources said the lender plans to raise Rs 500-700 crore via rights. Many existing institutional investors may subscribe to it in order to protect the investments they've already made

A meeting of the Board of directors of Lakshmi Vilas Bank Limited will be held on Thursday, October 15, to consider and approve the issue of Securities of the bank to existing shareholders on a rights basis. The issue will be subject to necessary regulatory and statutory approvals, LVB informed the exchange.

It may be recalled that the Board and shareholder meetings of LVB held on August 26 and September 25, respectively, approved the raising of funds by way of issuance of equity shares or other eligible security. These included global depository receipts, American depository receipts, foreign currency convertible bonds, fully/partly convertible debentures and other instruments, aggregating to not more than Rs l,000 crore.

Sources said the lender plans to raise Rs 500-700 crore via rights issue. Many of the existing institutional investors are expected to participate and subscribe to it in order to protect the investments they have already made.

Recently about 60 per cent of the shareholders voted against the appointment of MD & CEO and six directors, including promoter K R Pradeep, following which RBI appointed a committee to manage the bank's day-to-day affairs.

A senior official from one of the institutional investors which holds less than 5 per cent stake in the bank confirmed the development and requested anonymity.

Sources said that while LVB will pursue the merger plan with Clix Capital, the proposed right issue is aimed at increasing the capital adequacy ratio (CAR).

As of June, LVB's Basel-III compliant CAR slumped to 0.17 per cent from 1.12 per cent in the previous quarter. The bank's tier-1 capital ratio turned negative and worsened sequentially to (-)1.83 per cent in April-June from (-)0.88 per cent, compared with the minimum requirement of 8.875 per cent.

At the bank's AGM, its shareholders approved a resolution authorising it to undertake capital raising as FPO, Rights issue, QIP or other available routes to raise capital. LVB was unsure about the response to a QIP in the current circumstances, and therefore decided to explore the rights issue route.

If there is capital infusion of about Rs 1,200 crore, then the operating profit in three years will be about Rs 100 crore, said an official.

The lender’s only shot at survival is an investor putting in a large chunk of capital.

The bank's attempt to find ann investor in Indiabulls Housing Finance was rejected by RBI. The regulator did not give reasons for denying permission.