Care revises rating on LVB's commercial papers to BB+ with negative outlook

Mumbai: Care Ratings has revised the rating of troubled private sector lender Lakshmi Vilas Bank's (LVB's) commercial papers worth Rs 618.7 crore to BB plus with negative outlook from the earlier BBB minus with developing implications.

Tier two bonds under Basel III are characterised by a point of non-viability (PONV) trigger due to which an investor may suffer a loss of principal, said Care in its detailed rationale.

The revision in ratings assigned to various debt instruments of LVB is due to the increased level of uncertainty associated with timely mobilisation of fresh equity capital in view of recent developments, including placing of the bank under prompt corrective action by the Reserve Bank of India (RBI).

Under a corrective action, the RBI restricts banks from issuing big corporate loans to reduce the lender's concentration of risk and also limiting the opening of new branches.

"The rating also takes note of non-approval of the proposed scheme of amalgamation with Indiabulls Housing Finance Ltd and Indiabulls Commercial Credit with LVB," said Care.

"The rating is constrained by weak asset quality, weak capitalisation levels and weak financial performance as reflected in losses during 2018-19 and the first quarter of 2019-20, moderate size of the bank and its regional nature of operations." Care said the negative outlook on the rating reflects an expectation of incremental provisions further impacting the profitability and capital adequacy levels of the bank.

The Economic Offences Wing of Delhi Police is probing allegations of cheating and misappropriation of funds by the board of directors at LVB.

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