RBI rejected DBS’s offer to buy 50% stake in 2018: Lakshmi Vilas Bank’s largest promoter

Ok R Pradeep, the only largest promoter of the crippled Lakshmi Vilas Bank with a 4.eight per cent shareholding, has mentioned that Singapore’s DBS was eager to amass 50 per cent stake within the lender for a excessive valuation in 2018 however the Reserve Bank didn’t enable the deal to undergo.

With the Reserve Bank of India (RBI) superseding Lakshmi Vilas Bank’s board and mooting its merger with DBS Bank India, Pradeep additionally mentioned he was assured that the central financial institution might be variety sufficient to hearken to all of the shareholders and promoters, and won’t allow them to go empty handed.

Currently, Pradeep’s 4.eight per cent shareholding within the lender doesn’t have any worth and so are the remainder of the promoters and different shareholders, together with retail shareholders who personal round 45 per cent of its fairness.

Apart from Pradeep, there are three different promoter households — N Ramamritham, N T Shah and S B Prabhakaran — who collectively personal 2 per cent.

Together with Pradeep, the promoters’ holding is simply 6.eight per cent. Institutional traders led by Indiabulls Housing have round 20 per cent stake within the 94-year-old lender.

According to Pradeep, promoters are additionally approaching markets watchdog Sebi however will watch for the ultimate scheme of merger that the RBI will announce later within the day at present.

“We have full faith that as the regulator the Reserve Bank will give us a patient hearing and that our inputs and objections to the draft scheme will be considered before taking a final call. So, it is too early to say whether we will be mounting a legal challenge to the regulatory decision,” Pradeep informed PTI on Friday.

Also Read | Lakshmi Vilas Bank shares sink 20% after RBI imposes 1-month moratorium

Bengaluru-based Pradeep is a senior lawyer on the Supreme Court and in addition a chartered accountant. Before the RBI outdated the LVB board on November 17, and positioned it underneath moratorium, he was a director of the financial institution that was launched in Karur in Tamil Nadu in 1926.

According to the draft merger scheme, the whole paid-up share capital of the financial institution might be written off upon the merger, which the RBI desires to be accomplished by December 16. This has shocked the financial institution’s fairness traders and a few of them have threatened to hunt authorized cures.

“In 2018, LVB appointed J P Morgan to scout for investors for a capital raising plan. J P Morgan invited a large number of investors and the offers ranged from Rs 100-155 a share. Then, DBS approached J P Morgan and offered Rs 100 a share and was ready to pick up at least 50 per cent stake of the bank,” Pradeep mentioned.

On why the deal didn’t undergo, he mentioned that DBS wished management of the financial institution and consolidate its India steadiness sheet by increasing quick.

“They did not want to be a financial investor but to run the business. But the RBI objected to this citing prevailing rules applicable to all private sector banks and wanted DBS to lower the stake to 15 per cent in five years,” Pradeep mentioned.

This was not acceptable to the Singaporean financial institution, and thus the deal didn’t undergo, he added.

Further, Pradeep identified that from Rs 100 a share, DBS will get the financial institution for nothing now and with a big steadiness sheet, if the RBI has its means.

“DBS has a capital base of Rs 7,500 crore and a deposit book of over Rs 20,000 crore. They are getting an equal amount in deposit book from LVB for zero absolutely nothing. This makes a compelling case for a proper valuation,” he mentioned.

Wondering whether or not the federal government can simply promote a non-public enterprise without cost to a different personal entity, Pradeep mentioned, “if profit is the criterion, how can the government seek a value for Air India and for many other loss-making state-units which were sold at a fair price,” he mentioned.

However, he’s assured that the RBI can simply remedy the valuation challenge with progressive methods.

For occasion, he mentioned, the regulator can put aside some stake of DBS India for LVB shareholders or it could actually enable part of the extra capital to be shared by the financial institution’s promoters by way of a QIP challenge or asking them to challenge a tradable warrants/ debentures.

On the failed take care of Clix Capital, Pradeep mentioned after the shareholders voted out the financial institution’s whole administration eventually annual basic assembly, the Clix group delayed their course of which type of examined the RBI’s endurance.

He additionally claimed that the disaster might have been averted had the regulators cleared the financial institution’s Rs 800-1,000 crore follow-on provide utility and the Rs 500-crore rights challenge utility on time.

Also Read | Why is Lakshmi Vilas Bank troubled, what’s subsequent for the lender

On November 17, the RBI unveiled a draft merger scheme underneath which, DBS will infuse Rs 2,500 crore regulatory capital into the cash-strapped LVB and the regulator desires the whole course of to be accomplished by December 16. The RBI has given time until November 20 for varied stakeholders to offer recommendations and objections for the draft scheme.

Since November 17, LVB shares tanked over 35 per cent to Rs 9 on the BSE on Friday, shedding 10 per cent on Friday.

This isn’t the primary time that the RBI has resorted to pressured mergers of troubled banks. In 2004, it ordered merger of Global Trust Bank with Oriental Bank of Commerce and in 2006 it requested IDBI to take over United Western Bank.

Later, in 2008, Times Bank was requested to be merged with HDFC Bank and 2011 Bank of Rajasthan was merged with ICICI Bank. The newest such rescue was that of Yes Bank by SBI and 7 different lenders in March.