Lakshmi Vilas Bank put under RBI corrective action amid police probe
30 September 2019
The Reserve Bank of India (RBI) has initiated Prompt Corrective Action (PCA) against Lakshmi Vilas Bank (LVB) after the private lender reported a spike in bad loans, inadequacy of capital to manage risks and negative return on assets for two consecutive years.
The RBI action also comes after the Delhi Police's Economic Offences Wing registered a complaint against the board of LVB for alleged cheating and misappropriation of funds.
In a complaint registered with the EOW on 23 September, financial services company Religare Finvest (RFL) has accused Lakshmi Vilas of misappropriating funds to the tune of Rs790 crore it kept with the bank as a fixed deposit.
The FIR against directors of the bank alleges cheating, criminal breach of trust, criminal misappropriation and criminal conspiracy.
The police probe into misappropriation of funds combined with RBI corrective action could jeopardise the proposed merger of Indiabulls Housing Finance with LVB, which is yet to receive RBI approval.
Lakshmi Vilas plans to merge operations with housing finance firm Indiabulls Housing Finance Ltd (IBHF) in a share-swap deal.
In a statement on Friday, LVB said the registration of the police complaint was a "desperate measure", and did not mean anything at this stage, adding that the RBI action was aimed at improving the bank's performance and will not adversely impact its day-to-day operations.
However, the RBI corrective action restricts lender’s ability to make large corporate loans and opening of new branches, among others.
The RBI action places Lakshmi Vilas Bank in a list of troubled lenders in the country that are plagued with mounting bad loans that are difficult to recover.
Other banks such as IDBI Bank, Central Bank of India and United Bank of India are also under RBI prompt corrective actions.
Lakshmi Vilas Bank on Saturday said it has got shareholders’ approval to raise up to Rs1,000 crore by issuance of securities.
The resolution to raise funds by issuance of securities, including American Depository Receipt (ADR) and Global Depository Receipt (GDR), was approved by shareholders in the annual general meeting held on 27 September, the bank stated in a regulatory filing.
Shareholders also approved raising authorised share capital from Rs500 crore toRs650 crore through issue of equity shares of Rs10 each.