KR Pradeep, the biggest promoter of crippled Lakshmi Vilas Bank with 4.8% stake, said Singapore’s DBS wanted to acquire 50% of the lender for high valuation in 2018, but the Reserve Bank did not not allowed to process it through.
With the Reserve Bank of India (RBI) replacing the board of directors of Lakshmi Vilas Bank and considering its merger with DBS Bank India, Pradeep also said he was confident the central bank will be kind enough to listen to all. shareholders and promoters, and will not be left empty-handed.
Currently, Pradeep’s 4.8 percent stake in the lender is worthless, as are the rest of the promoters and other shareholders, including the retail shareholders who own around 45 percent of its capital.
Besides Pradeep, there are three other promoter families – N Ramamritham, NT Shah and SB Prabhakaran – who collectively own 2 percent.
With Pradeep, promoter participation is only 6.8 percent. Institutional investors led by Indiabulls Housing own around 20% of the capital of the 94-year-old lender.
According to Pradeep, the developers are also planning to move closer to market watchdog Sebi, but will wait for the final merger plan that the RBI will announce later today.
“We are confident that as a regulator, the Reserve Bank will give us a patient hearing and that our contributions and objections to the draft program will be taken into account before making a final appeal. So it is too early to say whether we will mount a legal challenge to the regulatory decision, ”Pradeep told PTI on Friday.
Read also | Lakshmi Vilas Bank shares fell 20% after RBI imposed month-long moratorium
Pradeep, based in Bengaluru, is a senior Supreme Court attorney and also a chartered accountant. Before the RBI replaced LVB’s board of directors on November 17 and placed it under moratorium, he was the director of the bank that was started in Karur, Tamil Nadu in 1926.
According to the draft merger plan, all of the bank’s released share capital will be written off during the merger, which the RBI wants to finalize by December 16. This shocked investors in the bank’s shares and some of them threatened to seek legal remedies.
“In 2018, LVB appointed JP Morgan to seek investors as part of a fundraising plan. JP Morgan invited a large number of investors and the offers ranged from Rs 100-155 per share. Then DBS approached JP Morgan and offered Rs 100 per share and was prepared to take at least 50 percent of the bank’s shares, ”Pradeep said.
On why the deal was unsuccessful, he said DBS wanted to control the bank and consolidate its Indian balance sheet by growing rapidly.
“They didn’t want to be a financial investor but to run the business. But the RBI objected to this, citing the current rules applicable to all private sector banks and wanted DBS to lower the stake to 15 percent in five years, ”Pradeep said.
This was not acceptable to the Singaporean bank and therefore the deal was not successful, he added.
In addition, Pradeep pointed out that from Rs 100 per share, DBS will get the bank for nothing now and with a big balance sheet, if the RBI is successful.
“DBS has a base capital of Rs 7,500 crore and a deposit book of over Rs 20,000 crore. They receive an equal amount in LVB’s deposit book for absolutely zero. This is a compelling argument for an appropriate assessment, ”he said.
Questioning whether the government can just sell a private company for free to another private entity, Pradeep said, “If profit is the criteria, how can the government seek value for Air India and many other units of State loss that have been sold? at a reasonable price, ”he said.
However, he is convinced that the RBI can easily solve the problem of valuation with innovative means.
For example, he said, the regulator can set aside part of DBS India for the shareholders of LVB or it can allow part of the additional capital to be shared by the promoters of the bank via a bond issue. QIP or by requiring them to issue negotiable warrants / debentures. .
On the breakdown of the deal with Clix Capital, Pradeep said that after shareholders voted to reject all of the bank’s management at the last annual general meeting, the Clix group delayed its process. , which kind of tested the patience of the RBI.
He also claimed that the crisis could have been avoided had regulators cleared the bank’s Rs 800-1000 crore follow-up bid request and the Rs 500-crore rights issue request in time.
Read also | Why is Lakshmi Vilas bank troubled, what’s next for the lender
On November 17, the RBI unveiled a draft merger plan under which DBS will inject regulatory capital of Rs 2,500 crore into the cash-strapped LVB and the regulator wants the whole process to be completed by now. December 16. The RBI has given time until November 20. to the various stakeholders to make suggestions and objections for the draft scheme.
Since November 17, shares of LVB have fallen more than 35 percent to Rs 9 on BSE on Friday, losing 10 percent on Friday.
This is not the first time that the RBI has resorted to forced mergers of troubled banks. In 2004 he ordered the merger of Global Trust Bank with Oriental Bank of Commerce and in 2006 he asked IDBI to take over United Western Bank.
Later in 2008, Times Bank was asked to merge with HDFC Bank and 2011 Bank of Rajasthan merged with ICICI Bank. The last such bailout was that of Yes Bank by SBI and seven other lenders in March.