RBI initiates prompt corrective action against Lakshmi Vilas Bank

Lakhsmi Vilas Bank (LVB) has been put under the banking regulator’s watch due to weak financials, the private lender said in a regulatory filing on September 28.

The Reserve Bank of India (RBI) initiated Prompt Corrective Action (PCA) against LVB on September 27 after an on-site inspection. The move was taken due to high non-performing assets (NPAs), insufficient capital adequacy levels, negative Return on Assets and high leverage.

“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,” LVB said in the statement.

Under PCA, the RBI can limit the bank from extending big loans, dividend distribution, branch expansion and management compensation. Last year, 11 public sector banks with unhealthy balance sheets were put under the framework.

However, it will not have any adverse impact on the normal day-to-day operations of the bank including acceptance and repayment of deposits, LVB said.

The bank had been at the risk of breaching thresholds that trigger PCA since the past few quarters.

As on June 30, the bank's total Capital Adequacy Ratio (CAR) was at 6.46 percent, as against 7.72 percent as on March 31, 2019, and 9.45 percent as on June, 30, 2018.

The bank's gross NPA ratio stood at 17.30 percent as on June 30, as against 15.30 per cent in the previous quarter. Net NPA ratio stood at 8.30 percent, as against 7.49 percent as on March 31, 2019.

LVB’s chief executive Parthasarathi Mukherjee resigned from this post in August citing personal reasons. The bank has invited applications for his replacement.

The bank’s stock price dropped 4.94 percent to Rs 36.55 on September 27 — its lowest trading permissible limit for the day — on the BSE after an FIR was registered against directors of the company over allegations of various offences including cheating.

On the NSE, it fell 4.94 percent to Rs 36.50.