Money & Banking

Lakshmi Vilas Bank: Retail investors tripped in the hunt for big gains

NARAYANAN V Chennai | Updated on November 19, 2020

Lakshmi Vilas Bank   -  BusinessLine

Despite caution, retail shareholding spiked 7.69 percentage points over the past year

Retail investors have been caught on the wrong foot yet again in accumulating shares of Lakshmi Vilas Bank over the last two years, even as the capital-starved lender was struggling with mounting losses, high non-performing assets, and a host of corporate governance issues.

PCA framework

According to the latest shareholding data, retail shareholding in LVB increased to 46.73 per cent as of September 2020 from 39.04 per cent during the same period last year. The increase in retail participation came despite the lender being placed under the Prompt Corrective Action (PCA) framework by the RBI in September 2019 on account of high net NPAs, insufficient capital, negative return on assets (RoA) for two consecutive years, and high leverage.

In sharp contrast, foreign portfolio investors (FPIs) – known for taking long-term structural bets – nearly halved their exposure in LVB since the imposition of the PCA. FPI holding in LVB fell from 12.25 per cent in September 2019 to 8.65 per cent in the latest quarter.

Despite the caution by several market experts, retail investors loaded up on LVB’s stock in the hope of making big gains. Now, they could lose their entire capital as the RBI’s draft scheme of amalgamation with DBS India states that the entire amount of the paid-up share capital and reserves and surplus, including the balances in share/securities premium account of LVB, will be written off and its shares or debentures will be delisted from stock exchanges.

The counter on Wednesday witnessed a trading volume of 29.45 lakh shares on the BSE and 25.45 lakh shares on the NSE.

This is not the first time retail investors have caught a falling knife. In March, retail investors in YES Bank were also trapped in ‘value hunting’ when the share price lost a whopping 85 per cent in a day after the RBI superseded its board and imposed a month-long moratorium.

Retail holding in YES Bank stood as high as 47.96 per cent as of December 2019, against 16.27 per cent a year earlier.

Published on November 19, 2020

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