RBI initiates PCA against Lakshmi Vilas Bank

With this, Lakshmi Vilas Bank becomes the first private lender to come under RBI's PCA.

Private sector lender Lakshmi Vilas Bank (LVB) on Saturday has become the first private sector lender to be placed under the prompt corrective action (PCA) by the Reserve Bank of India (RBI).

The lender, which is being investigated by the police over the allegations of misappropriated of funds by one of its clients, has sought merger with another embattled lender Indiabulls Housing Finance.

“The Reserve bank of India, vide their letter dated September 27, 2019 has initiated Prompt Corrective Action for Lakshmi Vilas Bank Limited on account of high net NPA, insufficient CRAR and CET 1, negative RoA for two consecutive years and high leverage, based on the on-site inspection,” the bank said in regulatory filing.

The bank’s net NPA has been surging off late and it had reported a net NPA of 8.30% in the June quarter, while its return on the asset stood at -2.72%. In a more alarming number, the bank’s capital adequacy ratio has declined to 6.46% from 9.45% a year ago – way below the RBI’s benchmark.

At the peak of the RBI’s cleanup drive, the central bank had placed 11 public sector banks under the PCA norms, which were gradually removed after December.

PCA is a framework under which banks with weak financial metrics are put under watch by the RBI and the central bank restricts the lending capabilities of the banks.

It has three risk threshold levels based on where a bank stands on these ratios. The banks with a capital to risk-weighted assets ratio (CRAR) of less than 10.25% but more than 7.75% fall under threshold 1. Those with CRAR of more than 6.25% but less than 7.75% fall in the second threshold. In case a bank’s common equity Tier 1 falls below 3.625%, it gets categorised under the third threshold level.

The Prompt Corrective Action is aimed at improving the performance of the bank and it will not have any adverse impact on the normal day-to-day operations of the bank including acceptance/repayment of deposits in the normal course, LVB said in a statement assuring its investors.

On Friday, shares of LVB tanked 4.94% to Rs 36.55 apiece after the bank said that Economic Offences Wing of Delhi Police registered a first information report (FIR) against its directors of the board.

The FIR was registered under complaint for offences of cheating, criminal breach of trust by banker, criminal misappropriation and criminal conspiracy under the Indian Penal Code 1860.

"The FIR is based on a complaint filed by Religare Finvest Ltd (RFL) pertaining to adjustment of their deposits to the dues of RHC Holding Pvt Ltd and Ranchem Pvt Ltd. The same was received at bank''s end on September 25," LVB said.

RFL has accused LVB of misappropriating Rs. 790 crore it kept with the bank as a fixed deposit.