Data Focus

How aggressive lending, rising NPAs sent LVB crashing

Surabhi Mumbai | Updated on November 20, 2020

Shift from SME, retail lending to corporate lending triggers quick slide

The 94-year-old Lakshmi Vilas Bank (LVB) may have been in the news for over a year now, since it was brought under Prompt Corrective Action (PCA) by the Reserve Bank of India in September 2019, but the lender had been struggling with mounting bad loans fora longer while.

Its troubles seem to have started sometime in 2016-17, after it decided to move to corporate lending from its earlier focus on SME and retail lending. This was also the time when it gave a loan of about ₹720 crore to former promoters of Ranbaxy and Fortis Healthcare, Malvinder Singh and Shivinder Singh, which later turned non-performing.


In poor health

“For the past three years and more, the Tamil Nadu-based private sector LVB has not been in good health. Rather, it was suffering from bad health and continuous loss. The reason is well known to all including the RBI,” the All India Bank Employees’ Association (AIBEA) had said in a recent statement.

It added that the bank had granted bad loans of more than ₹2,000 crore to borrowers such as Religare, Jet Airways, Cox and Kings, Nirav Modi Group, Coffee Day and Reliance Housing Finance.

Data from its annual reports show that the bank seems to have decided to take up aggressive lending. Its total net advances expanded by a robust 8.59 per cent to ₹25,768.20 crore as on March 31, 2018, from ₹23,728.91 crore a year earlier.

However, gross non-performing assets (NPAs) rising to 9.98 per cent of gross advances as on March 31, 2018, from 2.67 per cent a year earlier, coupled with lack of adequate capital, made the bank moderate its lending in 2018-19 and focus on “capital optimisation and conservation”. As a result, net total advances declined 21.98 per cent to ₹20,103.26 crore by March 31, 2019.

With its capital position deteriorating some more, net advances fell 31.22 per cent further to ₹13,827.89 crore by March 31, 2020, which LVB’s annual report attributed to “constraints arising from lower CRAR”.

By September 30, 2020, advances further declined to ₹13,505.16 crore even as gross NPAs mounted to 24.45 per cent of gross advances and capital adequacy ratio fell to (-) 2.85 per cent.


Sectoral NPAs

About 37 per cent of LVB’s loan book is from the corporate segment, according to its annual report of 2019-20.

A sectoral break-up of NPAs shows that bad loans from the infrastructure sector were the highest, at ₹718.97 crore, followed by basic metal and metal products, at ₹341.86 crore.

“During FY20, the asset quality deteriorated in the banking industry in general and in your bank; many accounts have slipped to NPA from different segments including corporate, MSME and retail.

“Despite the good performance under recovery, the huge slippage of accounts to NPA overshadowed the recovery performance,” the annual report noted, adding that it recovered ₹761.38 crore from the NPA accounts.

However, a former investor points out that it is not as if the bank was alone in giving out these loans. “Many of the loans were given as part of a consortium. The economic situation also changed in this period,” he noted.

The bank’s efforts to find an investor and raise capital are well documented but the long wait seems to have finally made the RBI step in,arranging a ‘rescue’ of LVB by DBS Bank.


Published on November 20, 2020

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