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Brickwork Ratings India has downgraded bonds issued by Lakshmi Vilas Bonds worth ₹50.50 crore. The rating action is as follows: 

• Unsecured redeemable non-convertible subordinated lower tier-II bonds of Rs 50.50 crore downgraded from 'BWR BB+' (credit watch with developing implications) to 'BWR B+' (credit watch with negative implications)

What led to the downgrade?

• The rating downgrade necessarily factors in the rejection of seven directors of the bank, including the interim managing director and chief executive officer of the bank, by the bank's shareholders; the bank's substantially weak capital position; very high levels of gross non-performing assets (NPAs) and continuous losses reported by the bank for the past 10 quarters, except Q4FY20.
• BWR continues to place the rating on Credit Watch but with Negative Implications as timelines on raising substantial capital are uncertain for the bank to meet the regulatory capital adequacy requirements.
• The bank has gone into a major crisis after the  the shareholders rejected the CEOs and some board members -- this might hurt the borrowing capacity of the bank

INDmoney Analysis

There is a significant crisis brewing at Lakshmi Vilas Bank.  The bank’s asset quality is significantly deteriorated and the Capital Adequacy remains well below the regulatory limits. The bank continues to be under the Prompt Corrective Action (PCA) framework by the Reserve Bank of India (RBI) from September 2019. 

This downgrade could put further pressure on the lenders to Lakshmi Vilas Bank. Religare Enterprises Ltd’s NBFC arm Religare Finvest Ltd (RFL) has about Rs 950 crore dues pending (Fixed Deposit plus interest) from debt-ridden Lakshmi Vilas Bank (LVB). This is now at high risk. 

We recommend you to exit your exposure in both of these stocks.