The proposed merger between Clix Capital and Lakshmi Vilas Bank (LVB) has run into delays over the provisioning of the bank’s contingent liability of ₹720 crore related to transactions involving former Religare promoters Malvinder and Shivinder Singh, two people directly aware of the development said.
LVB had lent the amount to Religare Finvest Ltd (RFL), the investment arm of the Singh brothers, against fixed deposits of equivalent or nearly the amount during late 2016 and early 2017, the people said, requesting anonymity. However, RFL later filed a case against two former employees of LVB, alleging misappropriation of the funds in the fixed deposits and have accused the bank of seizing the collaterals for recovery for loans without proper authorization.
“Clix wants the bank to make full provisions against this account as they feel that the bank will have to return the money if it loses the case against RFL. However, the bank has sought legal opinion and is confident of winning this case. Hence, it feels that there is no need to keep full provision,” said one of the two people.
Clix will decide on the Lakshmi Vilas Bank deal by the end of this week, based on the board’s decision on the provisioning. The non-banking financial company, founded by Pramod Bhasin and Anil Chawla, had submitted a non-binding offer for amalgamation of the bank with itself earlier this month.
“If the deal gets delayed, then the condition of the bank will get worse, and it will be difficult to save it. Hence, we will wait till October end for the bank board to get back. We are ready to put in large amounts of capital. We are not aware of what the board’s thinking is,” said the second person cited earlier.
On 27 September, RBI had appointed a panel comprising three independent directors—Meeta Makhan, Shakti Sinha and Satish Kumar Kalra—to run the daily affairs of the bank. This move came after the shareholders of LVB ousted seven directors, including its MD and CEO and auditors at the annual meeting.
The struggling private sector bank is desperately looking for capital and has been in talks with the Clix Group for a merger since June. Subsequently, the bank had inked a non-binding agreement with the Clix Group for amalgamation.
The bank has been struggling to raise capital for the past few years. A merger proposal with non-banking financial company Indiabulls Housing Finance was rejected by the RBI in 2019.
For the year ended 31 March, LVB posted a net loss of ₹836.04 crore, marginally lower from the loss of ₹894.09 crore in 2018-19. As LVB was incurring losses for the previous 10 quarters, the central bank placed it under the Prompt Corrective Action (PCA) framework in September 2019.
Under the PCA, LVB has been asked to bring in additional capital, restrict further lending to corporates, reduce non-performing assets and improve its provision coverage ratio to 70%.
