RBI initiates prompt corrective action against Lakshmi Vilas Bank

New Delhi: The Reserve Bank has initiated Prompt Corrective Action (PCA) against Lakshmi Vilas Bank (LVB) due to high level of bad loans, lack of sufficient capital to manage risks and negative return on assets for two consecutive years, the private sector lender said on Saturday.

The RBI move comes amidst the Delhi Police's Economic Offences Wing registering a complaint against the board of LVB alleging cheating and misappropriation of funds.

The regulatory action may cast doubts over the proposed merger of Indiabulls Housing Finance with LVB, which is awaiting RBI nod.

The Delhi High Court on Friday agreed to hear a petition alleging Indiabulls gave loans worth crores of rupees to shell companies.

In a regulatory filing, LVB said RBI has taken the action "on account of high net NPAs, insufficient Capital to Risk (Weighted) Assets Ratio (CRAR) and Common Equity Tier 1 (CET 1), negative return on assets for two consecutive years and high leverage."

PCA was initiated after an on-site inspection, under the risk-based supervision, was carried out for the year ended March 31, 2019.

"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," it added.

For FY19, the bank's net NPA stood at 7.49 per cent, capital adequacy ratio was at 7.72 per cent and its return on assets was (-) 2.32 per cent. It had reported a net loss of Rs 894.10 crore for 2018-19.

PCA is aimed at improving the performance of the bank and will not have any adverse impact on the day-to-day operations, including acceptance/repayment of deposits in the normal course, LVB said.

Under PCA, banks are mandated to cut lending to corporates and focus on reducing the concentration of loans to certain sectors. They are also restricted from opening new branches and paying dividends.

Banks currently under PCA are United Bank of India, Indian Overseas Bank, Central Bank of India, IDBI Bank and UCO Bank.

LVB's Chief Executive Parthasarathi Mukherjee had quit in August citing personal reasons.

Based on a complaint by financial services company Religare Finvest Ltd (RFL) which accused the bank of misappropriating Rs 790 crore it kept with the lender as a fixed deposit, the Delhi Police's Economic Offences Wing (EOW) had on September 23 registered a first information report (FIR) against directors of the bank for alleged cheating, criminal breach of trust, criminal misappropriation and criminal conspiracy.

Calling the move a "desperate measure", the private lender had on Friday stated that the registration of the police complaint does not mean anything at this stage and that the bank will cooperate with the investigating agencies and regulatory authorities.

"The bank is committed to cooperate with the investigating agencies and regulatory authorities apparently in order to bring out the malicious attempts of RFL to mislead the public to cover up massive fraud indulged by their own promoters, employees, group companies," it had said.