The Economic Times
English EditionEnglish Editionहिन्दी
| E-Paper
Search
+

    LVB crisis deepens as shareholders vote out current management

    Synopsis

    Voting results released late on Saturday night showed that seven of the ten directors proposed to be reappointed by the bank in its 93rd annual general meeting (AGM) held on Friday were rejected by the shareholders by a comfortable majority of more than 60% of votes polled.

    Out of the 15 resolutions proposed by the bank, eight were rejected including appointment of some directors and the auditor.
    Kolkata | Mumbai | Bengaluru: The beleaguered rump board of troubled Lakshmi Vilas Bank sought the Reserve Bank of India’s (RBI) help in securing a CEO after a dramatic shareholder coup on Friday left the 94-year-old bank without a CEO and promoter.

    No Comment from RBI
    “This CoD will exercise the discretionary powers of MD & CEO in the ad-interim and is composed of Meeta Makhan, chairperson of the CoD, Shakti Sinha, member and Satish Kumar Kalra, member,” the bank said.

    The RBI has so far not offered a comment on this shareholder revolt which created history by voting out seven directors including both its promoters. The action, unprecedented in the annals of Indian banking history at least since liberalisation in 1991, is being seen as a dramatic strike against persistent bad governance and mismanagement.

    One key bank shareholder though said that RBI was not happy with the shareholder vote. “It’s unprecedented and there’s a need for regulatory guidance’ “A committee has been formed, but given the complications it would be difficult without RBI’s intervention.”

    The coup has left the bank completely leaderless, and investors, depositors as well as employees are likely to face a few anxious days as the banking regulator Reserve Bank of India and the capital markets regulator Securities and Exchange Board of India grapple with this uncertainty. The development also calls into question the bank’s much-discussed merger with Clix Capital.

    Capri Global Capital, which holds just below 4% in the bank, was among the institutional investors to vote against the directors. Rajesh Sharma, managing director of Capri Global, said his company took the call based on the current state of the bank.

    “This bank has been facing losses. There are allegations of fraud. Just last week the Delhi Police arrested two former officials. The share price has fallen to Rs 20 from Rs 150. We have been watching all this for some time. We have now taken the call and decided that the management cannot continue," Sharma said adding that his decision was an independent one.

    The appointment of chief executive officer S Sundar was voted down. The reappointment of other six directors including N Saiprasad and KR Pradeep was also defeated. Nearly 100% institutional investors voted against these directors with 19% of promoters' votes going against them. Shareholders also rejected the reappointment of statutory auditors.

    Sundar, 65, took over as an interim CEO from January 1, after Parthasarathi Mukherjee's resignation from the top position on August 31, last year. Sundar was chief financial officer in the bank between April 2018 and December 31, 2019.

    WAY AHEAD
    A senior executive at a private sector bank said the LVB board will have to get some additional directors with RBI's approval first and that of the shareholders next. "They will have to go for a rights issue or get a new investor, or a combination of both. Capital augmentation should be their first priority at this point, or a white knight will have to rescue it."

    Three directors—Shakti Sinha, Meeta Makhan and Satish Kumar Kalr—were given another term with an identical 0.18% votes against each one of them. Sharma said the directors voted back were ones who were "neutral" and "professional."

    “The bank continues to have a fully functional board with three independent directors,, Shakti Sinha said late Sunday, issuing a statement on behalf of the board of directors. “The bank will continue the process of considering and evaluating the proposed amalgamation of the ‘Clix Group’ with the bank," he said.

    Delhi-based Clix Capital, which was in advanced talks to take over LVB, is watching the developments and will take a call in the next few days. "We knew some shareholders were unhappy with the way the bank was doing, the current management, and it looks like they have now got together," said a person familiar with the company's thinking.

    LVB signed a preliminary, non-binding letter of intent (LoI) with Clix Capital Services and Clix Finance India on June 15 to discuss a possible merger. They failed to complete due diligence within an extended deadline but maintained that the delay was because of Covid-related disruptions and the process is still on.

    INVESTOR ANGST
    ET spoke with some shareholders who said unscrupulous lending, advances to low-rated, doubtful corporates, and deviation from policy guidelines while lending landed the bank in the present mess. A forensic inspection, they said, could bring out the truth and clean up the bank.

    Shareholders on Friday also rejected proposals to extend the term of independent directors Garinka Jaganmohan Rao, Raghuraj Gujjar, BK Manjunath and YN Lakshminarayana. Except the CEO, all were non-executive, independent directors. All of them ceased to be on board from September 25.

    The pitch was set against the directors even before voting began on September 22. Institutional Investor Advisory Services (IiAS), a proxy advisory firm said that these directors lacked accountability considering the deterioration in the bank’s financial health in the past couple of years.

    “Many of these directors have rotated on-and-off. We believe that a part of the accountability for the bank’s deteriorating performance over the last few years rests with its slate of non-independent directors,” IiAS had said in its voting advisory to shareholders.
    LVB
    A prominent investor said they voted out the seven board members as shareholders have been "fed up" with mismanagement. “We want a good management in place of the present board which can identify potential investors and run the bank professionally. We are hopeful good things will happen in the next one year, but that will require constructive support from the RBI,” he said.

    A retired senior bank official earlier moved the Madras High Court seeking the court to issue a direction to the finance ministry, RBI and Sebi to suspend the bank’s board and appoint an administrator and ensure savings and investments made by investors and public shareholders in the bank are not misused.

    Indiabulls Housing Finance, which had to abort its plan to acquire the Chennai-headquartered private lender after Reserve Bank of India refused permission, owns 4.99% in the bank. JM Financial Services holds 3.88% while Srei Infrastructure Finance and DHFL Pramerica Life Insurance hold 3.34% and 2.73%, respectively. Promoters hold 6.8% in the bank.
    The 94-year old bank, set up by a group of seven businessmen in Karur, Tamil Nadu, has been battling hard times for the past three years after a large chunk of its loans turned non-performing assets (NPA) forcing the RBI to put it under the prompt corrective action (PCA) framework. The bank's tier I capital adequacy ratio is a negative -0.88%, limiting its ability to lend barring a few exceptions including gold loans.

    (Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Also Read

    14 Comments on this Story

    RajTill till24 days ago
    seems like Mafia operation like PMC name cooperative operates in multiple States commits frauds like PSU banks...
    TS Darbari28 days ago
    TS Darbari- This action has triggered a fresh crisis at the beleaguered LVB, which has been in the middle of merger process with PE fund-backed Clix Capital. LVB’s influential shareholders are a bunch of non-banking finance companies (NBFCs) such as Kolkata-based Srei International, Capri Global (5%) and Indiabulls group (little less than 5%) whose own merger proposal was shot down by the Reserve Bank last year.
    #TS_Darbari #TS_Darbari_Blog #Ts_Darbari_News #About_TS_Darbari #TS_Darbari_LaksmiVilasBank #TS_Darbari_Says
    Suresh Kamath28 days ago
    This ACT of Sensible Shareholders is TRULY CLASSIC one and HISTORIC but the BIG Question is of the Auditors /Authority of Banks and also RBI that in spite of such a ROT in this LVB wonder why did these Authorities allow such Situation as yet and NEED reasonable Explanation from them to the PUBLIC and also what is the NEXT Course of ACTIONS against all such Members of Management who have shown such "FRAUD" acts during their Tenure and this ACT should go down in the HISTORY of Shareholders and a feel that such ACTS are doable to THROW out "WEEDS" of Mismanaged BOARD with UNITY of ALL Minority Stakeholders and SHOULD be done wherever such inefficient MANAGEMENT exists.Severest actions be taken against every Member of these Bank Officials IMMEDIATELY and help SAVE the MONEY of ALL depositors of the BANK
    The Economic Times