Lakshmi Vilas under RBI lense; delisting looms

Lakshmi Vilas under RBI lense; delisting looms

Shares of Lakshmi Vilas Bank (LVB) are frozen at a daily lower limit of 19.94% to Rs 12.45 apiece, after the Reserve Bank of India (RBI) placed the bank under moratorium for a month and capped withdrawals by account holders at Rs 25,000 during this period.
The RBI also announced a draft scheme of amalgamation of LVB with DBS Bank India. Shareholders anticipate that if the merger materialises, it could completely wipe out the equity value of their holdings.
The central bank in the draft scheme of amalgamation said that the shares or debentures of the LVB, listed in any stock exchange shall stand delisted upon the merger.

Although, the scheme of arrangement would lead to extinguishment of capital/reserves, the merger with an unlisted bank will be negative for minority investors in LVB. Meanwhile, the larger interest of depositors has been protected.
RBI proposal suggest that on and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank, shall stand written off. Further, the transferor bank shall cease to exist by operation of the scheme, and its shares or debentures listed in any stock exchange shall stand delisted without any further action from the transferor bank, transferee bank or order from any authority.

Shareholders lost notional wealth of Rs 418 crore since the LVB hit a 52-week high of Rs 194.70.
As on September, retail shareholders of LVB hold 23.98% BSE data showed. Foreign portfolio investment (FPI) hold 8.65% and insurance companies including Life Insurance Company hold 6.40% in LVB. FPIs include India Opportunities Growth Fund Ltd-Pinewood Strategy, EQ Assets and Aviator Emerging Market Fund. Besides LIC, Aditya Birla Sun Life Insurance and Pramerica Life Insurance hold 1.83% and 2.73% in LVB.
Srei Infrastucture Finance hold 3.34%, Prolific Finvest hold 3.36% while Indiabulls Housing Finance hold 4.99% in the LVB.

LVB has been operating with a negative capital adequacy ratio (CAR) of 2.9% due to huge non-performing assets (NPAs) and without a CEO after shareholders ousted the caretaker CEO recently. The bank’s earlier merger attempt to revive independently via the amalgamation of Indiabulls Housing was thwarted by the RBI, while its discussions of merger with another NBFC – Clix Capital – had reached a dead end, which forced the RBI to put the bank under moratorium for one month, supersede board and propose a forced merger with DBS Bank, an Indian subsidiary of DBS Singapore.

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