The Reserve Bank of India (RBI) has initiated Prompt Corrective Action (PCA) against Lakshmi Vilas Bank (LVB), the Chennai-based lender on Saturday.
RBI decided to put LVB in the PCA framework 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 unprecedented RBI move came in the wake of the Delhi Police’s Economic Offences Wing decision to register a complaint against the board of LVB. Economic Offensive Wing alleged cheating and misappropriation of funds.
The action came after an on-site inspection 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 said PCA would not have any adverse impact on its day-today operations, including the acceptance and repayment of deposits.
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 regulatory action may throw proposed merger of Indiabulls Housing Finance with LVB into doubt. 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".