Lakshmi Vilas Bank Under Moratorium, DHFL Resolution Saga, and Top Buzzing Stocks Today

Thu, 19 Nov Pre-Open

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Indian share markets ended at fresh record high levels for the third straight session yesterday.

Extending a record-breaking spree, benchmark indices witnessed gains in the last hour of trading supported by auto and financial stocks.

At the closing bell yesterday, the BSE Sensex stood higher by 227 points (up 0.5%).

The NSE Nifty closed higher by 64 points (up 0.5%).

Tata Motors and Mahindra & Mahindra were among the top gainers.

The BSE Mid Cap index ended up by 1.2%. The BSE Small Cap index ended up by 0.9%.

On the sectoral front, gains were largely seen in the auto sector and banking sector.

FMCG stocks, on the other hand, witnessed selling pressure.

Gold prices were trading down by 0.6% at Rs 50,454 per 10 grams at the time of closing stock market hours yesterday.

In global markets, gold rates edged lower even as coronavirus cases continued to surge in many parts of the world. On the domestic front, gold prices in India also edged lower, tracking muted global cues.

To know more about gold, you can check out our detailed article on gold investing here: How to Invest in Gold?

Speaking of the stock markets, India's #1 trader, Vijay Bhambwani talks about how you can end the year with trading profits, in his latest video for Fast Profits Daily.

In the video below, Vijay shares a way to find out which stocks are good for trading at this time.

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Top Stocks in Focus Today

Axis Bank will be among the top buzzing stocks today.

The Securities Appellate Tribunal (SAT), which hears appeals in the securities matters, has rapped Axis Bank for contempt of court and imposed a penalty of Rs 1 lakh on the private lender.

Delivering its verdict in the matter of Modex Securities where Axis Bank was the clearing member for the trades, SAT said the penalty was due to the fact that the bank sought the same relief which was once rejected by the tribunal and also did not comply with the directions mentioned in that order.

IIFL Finance share price will be in focus today. The stock of the company jumped over 12% intraday yesterday after the Non-Banking Financial Company (NBFC) said that its board will consider a proposal to buy back shares in the next meet.

The company in a press filing said the meeting of the board of directors of the company will be held on November 20, 2020, to consider the proposal for buyback of fully paid-up equity shares of the company and any other item.

Market participants will also track Tata Motors share price. The stock of the company was trading higher for the third straight day yesterday and hit a nine-month high of Rs 170 on expectations of improvement in the demand outlook.

Centre Puts Lakshmi Vilas Bank Under Moratorium; Caps Withdrawals at Rs 25,000

The central government has decided to place Lakshmi Vilas Bank under moratorium till December 16, 2020, based on an application made by the Reserve Bank of India. The move was announced through an order issued by the Ministry of Finance.

The bank will not be allowed to make payments exceeding Rs 25,000 to any creditors without prior approval from the RBI.

The Reserve Bank of India, in consultation with the Central government, has superseded the board of directors of the private lender for a period of 30 days owing to a serious deterioration in the financial position of the bank. TN Manoharan, former non-executive chairman of Canara Bank has been appointed as the administrator.

In other news, as per the draft scheme of amalgamation of Lakshmi Vilas Bank with DBS Bank India, the entire amount of the paid-up share capital will be written off.

However, this is only a draft scheme. The final scheme will be prepared after factoring in the feedback from various stakeholders.

Note that both the government and the RBI kept the LVB-DBS merger plan top secret till the last minute and, not even the LVB top brass had an idea of what's coming till the last minute.

The first announcement came from the central government on a one-month moratorium on the bank citing its deteriorating financials and failure to come with a revival plan on its own.

Lakshmi Vilas Bank share price ended the day down by 20% yesterday.

Speaking of Lakshmi Vilas Bank, if there is any private sector bank that has severely underperformed in the last two years, it has to be Lakshmi Vilas Bank.

Back in May 2019, we wrote an article around how we avoided a 60% loss in Lakshmi Vilas Bank.

Here's an excerpt from the article:

• LVB had an interesting story.
  
  The bank had a new management team in place. The bank was shedding its old image to bring out a new look.
  
  The new management had a clear vision and set several goals. These included deposit and loan growth targets, CASA (current account saving account) ratio targets, a focus on retail loans, and the reduction in cost-to-income ratio.
  
  So far so good.
  
  But the bank had its own legacy issues. These were rising bad loans, a weak balance sheet with a poor capital adequacy ratio (CAR).
  
  The falling CAR was a concern.
  
  The CAR is the ratio of a bank's capital in relation to its risk-weighted assets and current liabilities. The RBI has set the minimum CAR at 9% for all banks.
  
  A ratio below 9% indicates the bank does not have enough capital to expand its operations. It ensures that banks don't expand their business without having adequate capital.
  
  On one hand, LVB had bad loan issues and on the other, it badly needed capital to shore up its CAR.

If you look at the shareholding pattern of LVB during the 2-year time frame between May 2017 to May 2019, retail investors have increased by 15%. The number of shares owned by them increased by 24%.

A typical example of retail investors catching a falling knife!

DHFL Resolution Saga: Creditors Mull Special Option to Repay Retail Depositors

Lenders to troubled Dewan Housing Finance Ltd (DHFL) are looking at a repayment strategy for 55,000 fixed deposit (FD) holders as part of a resolution plan.

According to the minutes of a meeting of the Committee of Creditors (CoC) held last week, the lenders are looking at various scenarios to distribute the proceeds of the funds received from the new investor.

This includes distribution under the waterfall mechanism or under pari-passu distribution mechanism or setting aside some amount of the outstanding claims for small investors.

According to the waterfall mechanism under the Insolvency and Bankruptcy Code (IBC), secured creditors have to be paid fully before any payments can be made to unsecured financial creditors, who in turn, have priority over operational creditors. The pari-passu distribution mechanism gives equal priority to all creditors, and the proceeds are distributed in proportion to their debt.

Most lenders, however, favour a distribution plan where the CoC sets aside 5% of the claim amount for small investors, unsecured financial creditors and operational creditors, with the remaining resolution amount being distributed across secured creditors under the waterfall mechanism.

The consensus of all CoC members is not final as lenders remain divided over how much amount should be allocated to unsecured financial creditors that represents a small portion of CoC voting share.

How this pans out remains to be seen. Meanwhile, stay tuned for all the updates from this space.

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

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