The newsmaker of this week has obviously been Lakshmi Vilas Bank (LVB) and how the RBI is now rushing ahead with a rescue plan, extinguishing all value for the shareholders.
On Wednesday, LVB was placed under a moratorium, capping withdrawals from accounts at Rs.25,000/month. That’s the less worrying part; what has really got the goat of the shareholders is RBI’s diktat, proposing to merge LVB into DBS Bank India. Post this merger, LVB will cease to exist; its entire share capital, reserves, everything will be written off and its shares/debentures will get delisted from the stock exchanges, indicating complete loss of value for the shareholder. There is simply just no price discovery for the bank’s valuation under the current proposal of RBI.
LVB has been trying hard to find a buyer for more than a year now and last we heard, there was news of Clix Capital looking at capital infusion and a possible merge. Wonder what happened to that?
What we also know is that two years ago, in 2018, the very same RBI had rejected a proposal from the very same DBS Bank, which wanted to acquire a 50% stake in LVB. RBI rejected its bid because the foreign promoter was not game for diluting promoter stake to 15% as is the rule. So, now DBS will not get 50% but 100% stake and in 2018, LVB would have retained its identity and now it loses it all.
Why do all plans happen in hindsight after all damage is done and much water flows, not under the bridge but completely submerges the bridge!?
The LVB imbroglio has once again put the focus back on beleaguered Punjab and Maharashtra Cooperative (PMC) Bank. It has invited Expressions of Interest (EoI) for equity participation and 15th Dec is the deadline. What we hear is that quite a few business houses are showing interest but we will know the names only after 15th Dec.
For PMC, the proposal is to convert the PMC Bank into a small finance bank but that means the bank will immediately need an infusion of around Rs.6000 crore to bring the current negative net worth to zero and then another Rs.1000 to 1500 crore to maintain the Capital Adequacy Ratio (CAR) to at least 9% to help begin operations, which will eventually have to be raised to 15% as mandated by RBI.
The point we are making here – instead of RBI working on hindsight, it would be best to work with foresight and give the EoIs for PMC Bank a real thought. Just as it showed great speed for Yes Bank, wish it works with the same urgency in PMC Bank as those affected are SMES and MSMEs, the very same people RBI and the Govt is trying to help with its various policies and stimulus.