Brickwork downgrades Lakshmi Vilas Bank’s NCD rating to B+

Credit rating agency Brickwork Ratings (BWR) has downgraded the rating from BWR BB+ (credit watch with developing implications) to BWR B+ (credit watch with negative implications) for Lakshmi Vilas Bank’s (LVB) unsecured redeemable non-convertible subordinated lower tier II bonds – Series VII (Option B) of Rs 50.50 crore.

The rating downgrade necessarily factors in the rejection of seven directors of the bank, including interim MD & CEO, by shareholders, the bank’s substantially weak capital position, very high levels of gross NPAs and continuous losses reported for the past 10 quarters, except Q4FY20, BWR said in a note.

BWR has essentially relied on audited financials up to FY20 and unaudited financials of Q1FY21, developments in the bank during H1FY21, publicly available information and information/ clarifications provided by the bank’s management.

The bank continues to be under the prompt corrective action framework of the Reserve Bank of India.

BWR continues to place the rating on credit watch but with negative implications as timelines on raising substantial capital are uncertain to meet the regulatory capital adequacy requirements.

According to regulatory capital requirements, the bank needs to have a minimum total capital adequacy ratio (CAR) of 11.5%, Tier-1 ratio of 9.5% and CET-1 ratio of 8%, (including the capital conservation buffer of 2.5%) as of September 30, 2020. LVB had a total CAR of 0.17% while the Tier-1 ratio and CET-1 ratio were negative as of June 30, 2020.

BWR has noted recent developments in the bank and said it will continue to monitor the developments on the proposed amalgamation with the Clix group. The bank had received investor interest from the Clix group, comprising Clix Capital Services, Clix Finance India and Clix Housing Finance in June 2020, and the mutual due diligence was completed as of September 15, 2020.

The proposed amalgamation is expected to address concerns over the bank’s capital, reduce net NPAs and initiate efforts to exit the PCA required for its business growth.

BWR will also continue to monitor the bank for any restrictions by the regulator on the servicing of the coupon or debt obligations on any of its existing bond issues, and this shall remain a key rating monitorable. The bank has met its coupon servicing due on BWR-rated bonds due on September 30, and the debenture trustee has confirmed its payment.