Laksmi Vilas Bank- Etching Out A Brighter Future

Author: Bappaditta Jana

For the banking industry, the past year could be regarded as the year of misfortune. The supposed good times never arrived. Bad loans continued to pile up, demand for loans remained muted, and the much needed help from the regulator did not come either and demonetization loomed large. Lakshmi Vilas Bank claim to have been frightfully lazy till now. Since the times have changed, the bank has decided to work according to the demands of time. It is trying to turn 2017 in its favour.

Banks will probably face a weak third quarter on account of subdued demand for home, vehicle and consumer loans, bringing loan growth to a 54-year low. The RBI data last highlighted a major dip in loan growth at 5.8% on 9th Dec. This is the lowest growth rate since 1962. Two months ago, the loan growth hovered around 8%. Loan growth is a major factor in determining the economic activity of a country.

The managing director and the CEO of Chennai-based Lakshmi Vilas Bank, Parthasarathi Mukherjee is of the view that this quarter will definitely not be good as retail and small and medium sector enterprises have suffered. They may see this (slowdown) being passed on to the January to March quarter.

Lakshmi Vilas BankLakshmi Vilas Bank Ltd. was incorporated in the year 1926. It is a banking company which has a market cap of Rs. 2542.07 Cr.Products

Lakshmi Vilas Bank Ltd. key Products/Revenue Segments are

  1. Interest & Discount on Advances & Bills which contributes Rs. 2038.27 Cr to Sales Value (79.36 % of Total Sales)
  2. Income From Investment which contributes Rs. 519.40 Cr to Sales Value (20.22 % of Total Sales)
  3. Interest which contributes Rs. 7.36 Cr to Sales Value (0.28 % of Total Sales) 4.Interest On Balances with RBI and Other Inter-Bank Funds which contributes Rs. 3.27 Cr to Sales Value (0.12 % of Total Sales)for the year ending 31st Mar 2016.
QIP

Intraday on Thursday, Lakshmi Vilas Bank announced that it has launched a qualified institutional placement or QIP in order to raise more than Rs 599.88 crore by issuing 4.25 crore shares in domestic or international markets. The Committee of Directors for Capital Raising of the private sector bank, at a meeting held on Wednesday, has given the approval for the floor price for the QIP issue at Rs 141.15 per equity share. The bank may offer a discount of not more than 5 per cent on the floor price calculated on the QIP.

During May this year, the bank had informed that it is going to raise funds in one or more public or private offerings in domestic and/or international markets, either in the form of Qualified Institutional Placement (QIP) or Qualified Institutional Buyers (QIBs).

Apart from this, the bank said that the funds could also be raised by the issuance of equity shares through depository receipts, including global depository receipts (GDR) or American Depository Receipts (ADR) or even through foreign currency convertible bonds (FCCBs).

Most of the listed companies use the QIP route to raise funds by either issuing shares, fully or partly convertible debentures or any securities other than warrants which are convertible to equity shares to a QIB.

Road Ahead

Under its new management, Lakshmi Vilas Bank has taken a decision to re-invent itself and become more aggressive in lending as well as in the deposit aggregation space.

  • The bank is looking to rennovate its backend operations and technology framework. Also, the lender has also created specific businesses to look at specific verticals.
  • Over the next five years, the bank wants its Casa (current and savings account) to exceed the 25 per cent mark. At the end of the quarter ended September, the bank’s Casa stood at 17.31 per cent.
  • In order to push the Casa, the management has asked the bank’s branches to concentrate on the daily average balance of these accounts and not follow just year-end targets.
  • The bank will also hire a specialized agency to assess its risk management framework in order to ensure that bad loans can be kept under check. At the end of the quarter ended September, the net non-performing assets (NPA) of the bank were 1.87 per cent as compared with 1.01 per cent in the same quarter a year ago.
  • It aims to upgrade its retail and small & medium enterprises (SME) segments and reduce focus on the corporate book. As of now, 45 per cent of its total loan book is corporate. For the next few years, the management wants this share to be reduced to 25 per cent and the share of retail and SME loans to grow.
  • It is also going to raise capital within this financial year, as its capital adequacy ratio was low, at 10.10 per cent, at the end of the quarter ended September. They will raise up around Rs 600 crore but they looking for some quality investors that will add value to the bank, so it is taking time.
Stock Analysis

Lakshmi Vilas Bank shares ended 0.96 per cent higher at Rs 141.65 apiece on NSE. Yesterday, Lakshmi Vilas Bank saw a huge surge in volume, a 89.47-times surge over two-week average daily volume of 10,000 shares.

Intraday on Friday, Lakshmi Vilas Bank share price registered a marginal rise of 0.46 % at Rs. 142.70.

A meeting of the Committee of Directors of Lakshmi Vilas Bank Ltd for Capital Raising of the Bank (the "Committee") is scheduled on December 31, 2016 to inter consider and approve the closure of the QIP. The committee will give approval to the issue price including a discount, if any thereto as permitted under the SEBI ICDR Regulations for the Equity Shares to be allotted to qualified institutional buyers pursuant to the QIP and also approve and adopt the placement document in connection with the QIP.

Lakshmi Vilas Bank is a multibagger stock for this quarter as recognized by Dynamic Levels, based on their technical and fundamental research, it is seen to have traded in very high volumes. Multibagger stocks have a great potential to grow in the long run.