High NPA, low capital puts Lakshmi Vilas Bank under RBI’s corrective action framework
The Reserve Bank of India (RBI) on Saturday placed the troubled Lakshmi Vilas Bank (LVB) under its India’s Prompt Corrective Action (PCA) framework, which imposes restrictions on the bank.
LVB communicated RBI’s PCA measure initiated on Friday to stock exchanges on Saturday.
The Central bank’s move was taken on account of LVB’s high level of non-performing assets (NPAs) and insufficient capital.
Question marks have been raised over LVB’s planned merger with NBFC Indiabulls Housing Finance. LVB’s sorry state of affairs were revealed after a criminal complaint was filed against it by Religare Finvest with the Economic Offences Wing, Delhi accusing it of cheating and misappropriation of funds, a charge the bank had denied.
Under the PCA framework, banks are expected to cut lending to risky sectors and focus on reducing the concentration of loans to these sectors, such as realty, etc.
They are also restricted from opening new branches or paying dividends. Banks which are currently under PCA include United Bank of India, Indian Overseas Bank, Central Bank of India, IDBI Bank and UCO Bank.
RBI has initiated PCA for “on account of high net NPA, insufficient CRAR (Capital to Risk-weighted Assets Ratio) and CET 1 (Common Equity Tier 1), negative RoA (return on assets) for two consecutive years and high leverage”, based on the on-site inspection carried out for the financial year ended March 2019.LVB said, “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 had reported a net loss of Rs 894.10 crore for FY19, higher than the previous year’s net loss of Rs 584.87 crore.
With Rs 459.59 crore capital raising during FY19, its CAR rose to 7.72 per cent at the end of March from 7.57 per cent at the end of December 2018, however much lower than 9.81 per cent at the end of FY18.
Bank’s Gross NPA rose to 15.30 per cent in FY19 and net NPA to 7.49 per cent.The Reserve Bank of India had earlier nominated additional directors to the board of Lakshmi Vilas Ban.
banks to follow certain rules
Under Prompt Corrective Action framework banks are expected to cut lending to risky sectors and focus on reducing concentration of loans to the sectors, such as realty. They are also restricted from opening new branches or paying dividends