LVB hits 20% lower circuit as merger with DBS may wipe out shareholders' money2 min read . Updated: 18 Nov 2020, 12:34 PM IST
- 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
MUMBAI: Shares of Lakshmi Vilas Bank were stuck at the 20% lower circuit at ₹12.40 on Wednesday on fear that shareholders may see their equity value eroded if the Reserve Bank of Bank’s proposal to merge the cash-hollowed lender with DBS India goes through. On 25 June, the stock had hit a 52-week hit of ₹25 on hopes of a turnaround in the bank.
The stock is down 93.6% from its all high of ₹194.70 touched in July 2017. Shareholders have lost ₹417.53 crore in notional wealth since then.
"Although the extinguishment of capital/reserves and merger with an unlisted bank will be negative for minority investors in LVB, the larger interest of depositors has been protected," said Emkay Global Financial Services Limited.
The Reserve Bank of India (RBI) on Tuesday announced the merger of Lakshmi Vilas Bank (LVB) with the wholly-owned subsidiary of DBS Bank in India, soon after it imposed a one-month moratorium on the private lender and capped withdrawals at ₹25,000 per depositor.
For shareholders of LVB the future is uncertain as the RBI in the draft scheme of amalgamation has said shares or debentures of Lakshmi Vilas Bank, listed on stock exchanges shall stand delisted upon the merger.
“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," the central bank said.
It added that 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.
As on September, retail shareholders of Lakshmi Vilas Bank held 23.98% stake, as per BSE data. Foreign portfolio investment (FPI) held 8.65% and insurance companies including Life Insurance Company had 6.40% stake 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 Lakshmi Vilas Bank.
Srei Infrastucture Finance Ltd hold 3.34%, Prolific Finvest Ltd hold 3.36% while Indiabulls Housing Finance Ltd 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 chief executive after shareholders ousted the caretaker CEO recently. The bank’s earlier merger attempt to revive itself 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 central banker to put the lender under moratorium for one month, supersede board and propose a forced merger with DBS Bank, an Indian subsidiary of DBS Singapore.
“In our view, the merger of LVB (563 branches) with DBS Bank (33 branches), which is trying to expand its base in India, will be a long-term positive for the latter, while putting to rest concerns around a potential merger with a healthy large private bank as it has been the case in the past," said Emkay.