Lakshmi Vilas Bank Q2 Results: Net Loss At Rs 397 Crore, Auditor Says Bank Needs Urgent Capital Infusion

Lakshmi Vilas Bank’s Q2 net loss widens, auditors raise questions about going concern status

A branch of The Lakshmi Vilas Bank in Mumbai, India. (Photographer: Mahima Kapoor/BloombergQuint)
A branch of The Lakshmi Vilas Bank in Mumbai, India. (Photographer: Mahima Kapoor/BloombergQuint)

Troubled private sector lender Lakshmi Vilas Bank reported a net loss at a time its facing solvency issues and is in talks for a merger with non-bank lender Clix Capital Ltd.

Net loss of Rs 397 crore in the quarter ended Sept. 30, according to its exchange filing. That compares with a loss of Rs 357 crore a year earlier. In the quarter ended June, the loss stood at Rs 122 crore.

The bank’s net interest income, or core income, fell 27.7% to Rs 79.52 crore.

Lakshmi Vilas Bank saw a marginal improvement in asset quality. Gross non-performing asset ratio stood at 24.45% as of September compared with 25.4% as of June. Net NPA ratio improved to 7% from 9.64% in the previous quarter.

  • The bank’s gross advances fell 13.66% year-on-year to Rs 16,622 crore in the quarter ended September.

  • Its total deposit base fell 24.7% year-on-year to Rs 20,973 crore.

The private lender continued to face pressures on its capital adequacy ratio. As on Sept. 30, the overall capital adequacy ratio stood at -2.85%, showing severe solvency issues at the bank.

"The bank's Tier 1 Capital ratio has turned negative, at (0.88)%, (1.83)% and ( 4.85%) as at 31st March 2020, 30th June 2020 and 30th September 2020 respectively, as compared to the minimum requirement of 8.875%," the private bank’s auditors P Chandrasekar LLP noted in their remarks. "This requires the bank to take urgent effective steps to augment its capital base in the year 2020-21.”

The bank has informed the auditors that based on its internal assessment and the likely capital infusion, the bank will be able to realise its assets and discharge its liabilities in its normal course of business.

“The said assumption of going concern is dependent upon the bank's ability to achieve improvements in liquidity, asset quality and solvency ratios, augment its capital base and mitigate the impact of COVID-19 and thus a material uncertainty exists that may cast a significant doubt on the bank's ability to continue as a going concern,” the auditors opined.

The bank is in discussions with non-bank lender Clix Capital for a potential merger. According to its disclosures, the two parties are in the process of coming up with a structure that will be agreeable for both.

“There were minor incremental due diligence requested by Clix Group, which was completed this week,” the bank said in a statement.

The bank’s board has approved the issue of equity shares worth Rs 500 crore through a rights issue. It appointed ICICI Securities as merchant banker.

In September, Lakshmi Vilas Bank’s shareholders voted out seven directors from the bank’s board, including Managing Director and Chief Executive Officer S Sundar. Since then, the Reserve Bank of India has ordered that a committee of three directors run the bank’s daily affairs till a solution for this is found.

Last year, the bank was placed under the prompt corrective action framework of the Reserve Bank of India because of its financial position. Under the framework, the bank has to follow restrictions on lending, expansion and any other capital consuming activities.