The Reserve Bank of India and the Sebi are investigating whether some large shareholders of Lakshmi Vilas Bank (LVB) bought shares of the troubled lender through proxy entities beyond the regulatory cap in the middle of its search for a buyer according to sources.
The probe began after RBI received complaints that some large LVB shareholders bought shares through proxy entities beyond the permissible limit from the open market to raise their holding for greater control over the lender. Under RBI norms, a single entity can only buy less than 5% in any private bank without its prior approval.
“The regulators are investigating whether some of the existing shareholders have been purchasing equity in LVB through some proxy entities to work around the RBI cap. While the equity capital has been extinguished, the regulators are trying to find out if there were any wrongdoing,” said one of the two people cited above, both of whom spoke on condition of anonymity.
According to the second person, the probe aims to determine whether these shareholders were trying to exert more influence over the board through these proxies. “Some of the shareholders had a lot of say in the bank’s functioning, and perhaps the proxies were used to bolster their stands in board meetings,” he said.
At the time its share capital was wiped out by the banking regulator as part of a rescue plan, promoter entities held 6.8% in LVB, while the rest 93.2% was owned by public shareholders, both small and large. Public shareholders included foreign portfolio investors like India Opportunities Growth Fund Ltd-Pinewood Strategy (3.74%) and Aviator Emerging Market Fund (2.49%); non-bank financiers like Srei Infrastructure Finance Ltd (3.34%), Prolific Finvest Pvt. Ltd (3.36%) and Indiabulls Housing Finance Ltd (4.99%), among others.