The Reserve Bank of India (RBI) has initiated Prompt Corrective Action (PCA) against Lakshmi Vilas Bank (LVB) on account of a high level of bad loans, the lack of sufficient capital to manage risks, a negative return on assets for two consecutive years, and high leverage, the Chennai-based lender said on Saturday.
The action came after an on-site inspection, under the risk-based supervision, was carried out for the year ended March 31, 2019. The regulator has advised the bank on restrictions put in place and corrective steps it needs to take. “The bank has taken note of (them) for necessary compliance, with progress to be reported on a monthly basis to the RBI,” it said.
The bank said PCA would not have any adverse impact on its day-today operations, including the acceptance and repayment of deposits. “There are no restrictions on operations by depositors. The bank can also extend loans to all segments, except corporates and stressed and high-risk sectors,” said a source in the bank.
The PCA plan covers various suggestions or measures to recover non-performing assets (NPAs), reduce costs, boost capital, downsize risk-weighted assets, and improve profitability, among others. The LVB management is in the process of implementing all of these, said sources.
The RBI move came days after the Delhi Police’s Economic Offences Wing registered a complaint against the board of LVB, alleging cheating and misappropriation of funds. Saturdays development could be a major set back for the proposed merger of Indiabulls Housing Finance with LVB, which is awaiting the RBI’s nod.
The bank reported a loss of Rs 894 crore in 2018-19, significantly higher than the Rs 585-crore loss it posted the year ago.
The bank’s capital adequacy ratio (CAR), in line with Basel III guidelines, was 6.46 per cent as of June 30, 2019, as against 7.72 per cent as of March 31, 2019, and 9.45 per cent at the end of the June quarter last year.
The bank has raised capital amounting to Rs 188.16 crore by way of a preferential issue on private placement basis, under the non-promoter category, to India Bulls Housing.
The bank’s gross non-performing assets (NPAs) stood at 17.30 per cent as of June 30, as against 15.30 per cent as of March 31, 2019, sequentially. Net NPAs stood at 8.30 per cent, as against 5.96 per cent as of June 30, 2018, and 7.49 per cent as of March 31, 2019, sequentially. The provision coverage ratio improved to 63.08 per cent (55.80 per cent as of June 30, 2018, and 62.08 per cent as of March 31, 2019).
The bank has got shareholders’ approval to raise up to Rs 1,000 crore by issuance of securities. The resolution to raise funds by issuance of securities, including American Depository Receipt and Global Depository Receipt, was approved by shareholders in its annual general meeting. The shareholders also approved raising authorised share capital from Rs 500 crore, divided into 500 million equity shares of Rs 10 each, to Rs 650 crore, divided into 650 million equity shares