LVB to raise Rs 1,500 crore to fund business growth; increase foreign shareholding

Lakshmi Vilas Bank (LVB) plans to raise up to Rs 1,500 crore to fund business growth and increase foreign shareholding to up to 74 per cent, the private lender said in a notice.

LVB said it will seek approval for the proposals from its shareholders in the upcoming annual general meeting (AGM) on September 25 which will take place through audio/visual means due to the coronavirus pandemic.

The bank has been exploring various options for raising funds for augmenting the tier-I capital to support business growth as directed by the RBI, it said in the notice.

The Chennai-based lender said the board of directors in its meeting on August 26 accorded its approval for raising of funds, including by way of issue of equity shares, GDRs, ADRs foreign currency convertible bonds (FCCGs), preference shares convertible into equity shares among others in one or more tranches by way of one or more public and/or private offerings.

"Whilst no specific instrument has been identified at this stage, in the event, the issue will be structured in such a manner that the proceeds of the same would not exceed Rs 1,000 crore," it said.

"Since the proposed fund-raising activities may result in the issue of equity shares to investors who may or may not be members of the bank, consent of the members is being sought...The proposed issue of securities is in the best interest of the bank and your directors recommend the resolution for your approval," the bank said.

The bank will also seek shareholders' approval for raising another Rs 500 crore by issuing debt securities.

The bank has been borrowing funds for augmenting capital funds to support business growth as directed by RBI within the limits approved by members of the bank by way of issuance of various debt securities, it said in the notice.

"The board of directors have proposed to obtain the consent of the members of the bank for borrowing/raising funds in Indian /foreign currency by issue of debt securities pursuant to the relevant provisions of the applicable circulars or guidelines issued by RBI, up to Rs 500 crore in aggregate, for additional Tier I and/or Tier II capital, in one or more tranches in domestic and/or overseas market," it said.

To meet its capital requirements, LVB had sought the RBI's approval to amalgamate Indiabulls Housing Finance and Indiabulls Commercial Credit Ltd into itself in May 2019. It, however, could not get a regulatory nod for the amalgamation plan.

The lender in June 2020 inked a non-binding agreement with Clix Capital Services Private Limited (Clix Capital) and Clix Finance India Private Limited (Clix Finance) (collectively the Clix Group) for the proposed amalgamation of Clix Group with the bank for an estimated value of Rs 1,900 crore.

"Under the non-binding LoI (letter of intent), the proposed amalgamation is subject to completion of mutual due-diligence in exclusive window within September 15th, 2020, and will be subject to regulatory and other customary approvals.

"In the event the discussions between the contracting parties in relation to the proposed transaction is successful and definitive agreements are executed, we will make appropriate disclosures as required under the provisions of applicable law," LVB said in annual report for FY2020.

The independent auditor in the annual report noted, "The bank has been incurring losses for the past 10 quarters and the Reserve Bank of India has initiated Prompt Corrective Action in September 2019, which prescribes the bank to bring in additional capital, restrict further lending to corporates, reduce NPAs and improve the Provision Coverage Ratio to 70 per cent.

The auditors report said, "there has been a steady decline in the bank’s deposit base since September 2019 and increase in the NPA ratios. The bank’s Tier 1 capital ratio has turned negative, at -0.88 per cent, as compared to the minimum requirement of 8.875 per cent.

"This requires the bank to take effective steps to augment its capital base in the year 2020-21. We were informed that the bank routinely evaluates capital raising options."

LVB posted a net loss of Rs 836.04 crore during the year ended March 31, 2020.

The lender will also seek shareholders' nod for raising the foreign shareholding to 74 per cent which has been already approved by the board.

The existing aggregate holding of non-resident investors in the bank’s equity share capital as of March 31, 2020, is approximately 12.35 per cent, the bank said.

The previous limit approved by the shareholders at the 87th AGM held in September 2014 was 49 per cent of the equity share capital of the Bank within which the aggregate NRI holding cannot exceed 24 per cent.