Lakshmi Vilas Bank - Beginning of a New Inning :: Edelweiss, PDF link

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We met Mr. Rakesh Sharma, MD and CEO, Lakshmi Vilas Banka Limited (LVB) to understand the strategy of new management to steer bank towards strong profitable growth. Please find below the key takeaways from our discussion.

New management team in place

Mr. Rakesh Sharma has joined the company in March 2014. Prior to joining LVB, Mr. Sharma has worked for 33 years at State Bank of India. His last assignment at State Bank of India was of Chief General Manager for Patna circle, comprising two states of Bihar and Jharkhand. Post joining LVB, Mr. Sharma has started building team by hiring people from leading private sector banks. In addition, the corporate office has been shifted from Karur to Chennai. This will help attracting talent. The bank currently has 30% employees on contract basis. This ratio is expected to increase going forward. The management team is also focusing on building professional culture at the bank. We think that these are steps in right direction but will take time. In addition, E&Y has been hired as consultant for transformation of bank.

Shift in focus towards retail and SME segment

Currently, retail and SME segment constitute 72% of total advances and balance 28% is large corporate advances. Going forward, the focus will be to grow retail and SME book. Over the next 5 years, the bank targets to change the mix of retail and SME segment from 72% currently to 80% of total advances. The bank has minimal presence in the auto financing segment. For the same, bank is tying up with lading vehicle manufacturers.

Focus in increasing CASA ratio

The bank currently has CASA ratio of 15.45% which is low compared to peers. Currently 80% of deposits are retail term deposits. This has led to higher cost of deposit. Currently 85% of deposits are in 1 year bucket. The bank is incentivizing depositors for longer duration deposits by offering higher rate for longer term. The bank has launched schemes like 1% higher interest rate on deposits above INR 1 lakh. It is expected that the higher accretion of deposit will compensate for increase in interest rate offered. The bank targets to increase CASA ratio by 2% every year.

Focus on asset quality

As on Q1FY15, the bank has gross NPA of 3.96% and net NPA of 3.19%. In addition, the restructured assets as % gross assets are 7.62%. Wholesale segment contributes significantly to gross NPA. Currently, around 50% of non fund based SME advances is towards wood and wood product industry. The bank is making changes in the credit appraisal process to improve the asset quality. As a policy, only collateralized loan against immovable property will be given to SME segment. Advances will be given only to rated accounts. In addition, there will be cap of around INR 50-60 crores at single borrower level. During FY14, the NPA of provision of INR 87 crore pertains to previous year. The bank targets to bring gross NPA ratio sub 3% in couple of years.

Improved capital adequacy ratio

The bank recently concluded rights issue of INR 410 crores. This led to improvement in the capital adequacy ratio. The bank currently has capital adequacy ratio of 14.6% with Tier I and Tier II capital of 11.8% and 2.8% respectively.

Expansion plans on track

During FY14, the bank opened 72 branches (mainly during Q4FY14). It is expected to open similar no. of branches in the current year. Most of the new branches will towards increasing penetration in the states where the bank already has presence. The bank currently has 8 regional offices and is expected to increase the same to 12. The bank has appointed Chief Business officer to focus on HNI segment. The bank targets to grow the advances book at 20% per annum.

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