Lakshmi Vilas Bank is going to raise funds from institutional investors.
Chennai-based Lakshmi Vilas Bank will sell shares to new institutional investors as it plans to expand balance sheet, improve profitability and cut costs, Parthasarathi Mukherjee, managing director of the bank, said in an interview.
"We will be raising between Rs 300 crore and Rs 400 crore. I need growth capital. We will take an enabling resolution from shareholders and would like to broad base our investor base with a different class of investors this time," Mukherjee said, adding that he is looking at raising money from institutional investors through a qualified institutional placement ( QIP), or a preferential route.
Mukherjee, the fourth CEO of the old private sector bank in five years, took over as MD & CEO only in January after a 21-year stint with Axis Bank. He plans to increase the bank's balance sheet ten times by 2026 from Rs 45,000 crore in March 2016.
"We worked out two targets, mission 2020 and mission 2026. We think that growing the net profit by 15-20 times by March 2026 from Rs 180 crore in March is not impossible," Mukherjee said, adding that he targets to increase the return on asset (RoA) of the bank to 1% in the next three years from 0.72% in March 2016.
Results released on April 27 showed Lakshmi Vilas' net profit increased 23% to Rs 49 crore, driven by a 24% rise in net interest income as loans grew at 20%. However, analysts are worried about the bank's asset quality after three large restructured loans worth Rs 112 crore slipped into non-performing assets (NPAs) in the quarter-ended March, up from Rs 80 crore in March 2015 and much higher than the Rs 12 crore reported in December 2015.
"Slippages have increased but that's not such a big risk because the bank's NPAs are under control and 95% of the loans are secured. The real concern for the bank is the high cost-toincome ratio. Cost-to-income at 62% is too high, especially when larger lenders are somewhere around 45%," said Hemanth Reddy, analyst at Cholamandalam Securities.
The high cost-to-income ratio has not escaped Mukherjee's attention, and he plans to cut the bank's cost of funds by increasing the ratio of cheap current and savings account (CASA) deposits and boost income by focusing on earning fees by selling third party products.
"From February onwards, we have started focusing on third party sales. We expect a sharp increase in fee income via third party sales this year. Transaction banking revenues are also poor. We will see that happening through letter of credits, remittances and others," he said.
Other income, which includes fees and commissions, remained flat at Rs 93 crore in the March quarter against a year earlier. Lakshmi Vilas' CASA ratio at 15% of total deposits is one of the lowest in the banking industry. Mukherjee said he expects to increase it to 25% by 2020 and to 40% by 2026 by putting feet on the street to get new accounts.
"Keeping costs under check is very important for Lakshmi Vilas. But even the world is moving to digital, I don't know whether it makes sense to build more branches, especially when just 18 branches led to a 8 percentage point rise in cost to income ratio," Reddy from Cholamandalam said.