A 2017 loan of more than ₹723 crore extended to Malvinder Mohan Singh and Shivinder Mohan Singh, the erstwhile promoters of Ranbaxy and Fortis Healthcare, by Lakshmi Vilas Bank (LVB), is likely to put pressure on the bank’s minimum net-worth requirement of ₹500 crore, sources close to the regulator’s office told BusinessLine .

As of March 2018, LVB had a net worth of over ₹2,327 crore, considering its reserves, surplus and share capital. On that date, it had ‘net NPAs’ of more than ₹1,457 crore. If an FD amount of ₹800 crore, which, according to the bank is standing against the loan to the Singhs, is negatively impacted by a dispute, LVB’s net worth would come under pressure as per RBI norms, the sources said.

“The matter is sub-judice before the Delhi High Court. We would like to say the bank has acted in accordance with relevant provisions of law and banking norms in disbursing the loans and recovering the same,” LVB said in response to a query by BusinessLine .

A source close to LVB said that since the loan granted to the Singh brothers was against liquid security, the RBI norms may not apply.

The background

Religare Finvest (RFL), a subsidiary of Religare Enterprises, had invested around ₹794 crore in fixed deposits (FDs) with LVB in November 2016 and January 2017. LVB, in 2017, informed RFL that it had disbursed loans to RHC Holdings Pvt. Ltd. and Ranchem Pvt Ltd., the investment firms of the Singh brothers, against this FD.

The loan disbursement to the Singh brothers was contested by RFL in a strongly worded legal notice, a copy of which is with BusinessLine , through its law firm,

“RFL was shocked to receive a statement of current account on July 31, 2017, provided only on RFL’s request, the review of which showed that its FDs had purportedly liquidated prior to their schedule date of maturity and an aggregate amount of ₹768 crore being the proceeds of the FDs were credited in a current account where after a sum of ₹723 crore were unilaterally and illegally debited by the bank from RFL’s current account without RFL’s instruction, knowledge, consent or approval,” the notice addressed to Parthasarathi Mukherjee, Managing Director and CEO of LVB, on September 1, said.

Replying to RFL’s letter on September 19, LVB’s legal head Ravindra Kumar wrote to the company’s law firm: “We inform you that your client has not disclosed the full facts of the case before causing the said notice issued to the bank and the same contains several inconsistent / contradictory / incomplete information. We are in the process of collecting all information relating to the matter and we shall be sending suitable reply within 10 days from the date of receipt of the mail. We also inform you to advise your clients not to further precipitate the matter In the meantime.”

RFL has now approached the Delhi High Court against a move by LVB to appropriate its FD and adjust the same against the loan given by the bank to the Singh brothers. The source close to LVB further said that the FDs were disputed after the new management took charge at RFV in 2018 and prior to that the legal notice to the bank in September 2017 was withdrawn by RFL.

According to other sources, who spoke to BusinessLine on condition of anonymity, LVB’s ongoing case with RFL and its lending to the Singh brothers was being closely followed by the RBI. Though the regulator has not taken any action yet, if LVB faces an adverse impact, the RBI will swing into action as the bank’s net worth will be under severe pressure.

Reportedly, Religare Enterprises has said it had warned LVB against creating illegal encumbrance on the deposits. The bank Lakshmi Vilas Bank was “expressly informed” that Religare Finvest was “not party to any loans sanctioned or granted to any third party”, it said. The subsidiary had given “no authorisation, sanction or approval” allowing “creation of any security or encumbrance of the fixed deposits for any third-party loans or borrowings.”

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