RBI initiates prompt corrective action against Lakshmi Vilas Bank

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Updated: September 29, 2019 6:44:29 AM

Disputing the said adjustment, RFL had filed a suit against the bank in May, 2018 before the Delhi high court and the same was being defended appropriately by the bank.

PCA is a framework under which banks with weak financials are put under watch by the RBI, which recognises banks as risky if they slip below certain norms on three parameters — capital ratios, asset quality and profitability, capital to risk weighted assets ratio, which call for initiation of PCA.

Banking regulator Reserve Bank of India (RBI) has initiated prompt corrective action (PCA) against south-based private sector lender Lakshmi Vilas Bank (LVB), placing it under corrective watch to improve the performance of the bank. The apex bank took the decision taking into account LVB’s high net NPA, insufficient CRAR (capital to risk weighted asset ratio) and CET 1 (common equity Tier 1), negative RoA for two consecutive years and high leverage, based on the on-site inspection under the risk-based supervision carried out for the year ended March 31, 2019, LVB informed the stock exchanges in a regulatory filing.

PCA is a framework under which banks with weak financials are put under watch by the RBI, which recognises banks as risky if they slip below certain norms on three parameters — capital ratios, asset quality and profitability, capital to risk weighted assets ratio, which call for initiation of PCA.

The PCA sword fell on LVB when it has been in the process of securing approvals from the authorities for a merger with Indiabulls Housing Finance . The proposed plan was to merge Indiabulls Housing Finance and its wholly-owned subsidiary, Indiabulls Commercial Credit, with Lakshmi Vilas Bank. IBHFL is to hold around 90.5% of the post-merger enhanced equity capital of the merged entity, while shareholders of LVB are to hold around 9.5%.

Adding to the woes, the Economic Offences Wing of Delhi had registered a First Information Report (FIR) against its board members on a complaint filed by Religare Finvest (RFL) pertaining to adjustment of its deposits towards the dues of RHC Holding and Ranchem, a couple of days ago.

During the financial year 2017-18, the bank had adjusted deposit-loans aggregating to Rs 794 crore, extended to RHC Holding and Ranchem, the group companies of RFL against the RFL’s deposits. Disputing the said adjustment, RFL had filed a suit against the bank in May, 2018 before the Delhi high court and the same was being defended appropriately by the bank.

RFL had also filed an interim application in the suit claiming for attachment of the assets of the bank, its employees and directors. The said application was heard for more than an year and the same was reserved for orders. Ordering the PCA in its communication dated September 27, the RBI has also advised the bank on the restrictions put in place and the actions to be taken by the bank, which the bank has taken note of for necessary compliance, with progress to be reported on a monthly basis to RBI. “The Prompt Corrective Action is aimed at improving the performance of the bank and will not have any adverse impact on the normal day-today operations of the bank including acceptance and repayment of deposits in the normal course,” LVB said.

Parthasarathi Mukherjee had in August this year resigned from his post of MD & CEO of LVB in the midst of the ongoing procedures of the merger process. The net loss of LVB had widened to Rs 237.25 crore during the quarter ended June 30, 2019, as compared to a net loss of Rs 123.86 crore during the same quarter of the last year. The total income declined 14% during the period to Rs 677.17 crore, as against Rs 787.5 crore registered during the corresponding period last year.

The gross non-performing assets (NPA) as a percentage of gross advances stood at 17.30% (Rs 3,556.57 crore) during the three months ended June 2019, when compared to 10.73% (Rs 2,804.71 crore) in the same period of the previous year. Net NPA grew to 8.30% (Rs 1,539.40 crore) as compared to 5.96% (Rs 1,478.09 crore) in the same period of last year.

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