The Reserve Bank of India (RBI) has initiated Prompt Corrective Action against Lakshmi Vilas Bank Limited, the bank told the stock exchanges on Friday. The placing of LVB under the PCA, coupled with an FIR against its board members in a Rs 790 crore loan fraud case by Religare Finvest Ltd, could potentially hurt its proposed merger plans with Indiabulls Housing Finance Ltd.
The Lakshmi Vilas Bank stated the RBI action had come "on account of high net NPA, insufficient CRAR and CET 1, negative RoA (return on assets) for two consecutive years and high leverage, base on the on-site inspection under the Risk-Based Supervision carried out for the years ended on March 31". The Lakshmi Vilas Bank's total non-performing assets stood at 7.49 per cent as on March 2019, while the capital adequacy ratio was 7.72 per cent, and its return on assets was 2.32 per cent, reported Mint.
Under the Prompt Corrective Action, which was introduced in December 2002, the RBI imposes several restrictions on a bank, from lending to the distribution of dividends, etc. The measure is usually aimed at improving the performance of the bank. The Lakshmi Vilas Bank said that the PCA move "will not have any adverse impact on the normal day-to-day operations of the bank, including acceptance or repayment of deposits in the normal course."
The RBI has also advised the bank on the restrictions put in place and the actions to be taken by the bank, which it has taken note of for necessary compliance, with progress to be reported monthly to the RBI, said the bank. The bank had informed the stock exchanges in April that its board had approved its merger with the mortgage finance company Indiabulls Housing in a share-swap deal. The merged entity would be amongst the top eight private banks in India by size and profitability, with a net worth of Rs 19,472 crore, a loan book of Rs 1.23 lakh crore, and a combined workforce of 14,302 employees. The proposed merger had also got the Competition Commission of India (CCI) nod in June.
However, on September 23, the Delhi Police's Economic Offences Wing lodged an FIR against its director and board members and others on the charges of "cheating, criminal breach of trust by banker, criminal misappropriation and criminal conspiracy". The FIR was lodged on the complaint of Religare Finvest Ltd, which is the lending entity of Religare Enterprises. "The case pertains to the adjustment of RFL deposits to the dues of RHC Holding Pvt Ltd and Ranchem Pvt Ltd," LVB informed the stock exchanges on Thursday. The bank called the lodging of a case as a "desperate measure" and said mere registration of an FIR against the bank did not mean anything. It said the bank "committed to cooperate with the investigating agencies and regulatory authorities apparently to bring out the malicious attempts of RFL to mislead the public to cover up massive fraud indulged by their promoters, employees, group companies."
The shares of Lakshmi Vilas Bank were locked at 5% lower circuit in Friday's trading session after the Economic Offences Wing in New Delhi registered the FIR against its board members. Lakshmi Vilas formed a gap down chart pattern and opened with a loss of 4.94% today, hitting the 5% lower circuit at Rs 36.55.
Edited by Manoj Sharma