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The Reserve Bank of India has put Lakshmi Vilas Bank under prompt corrective action framework due to high bad loans and insufficient capital.
“It is hereby informed that the Reserve bank of India, vide their letter dated September 27, 2019 has initiated Prompt Corrective Action for Lakshmi Vilas Bank Limited on account of high net NPA, insufficient CRAR and CET 1, negative RoA for two consecutive years and high leverage, based on the on-site inspection under the Risk-Based Supervision carried out for the year ended March 31, 2019,” Lakshmi Vilas Bank said in a regulatory filing on Saturday.
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The RBI has also advised the bank on the restrictions put in place and the actions to be taken, which the bank has taken note of for necessary compliance, with progress to be reported every month to RBI, it further said.
“The Prompt Corrective Action is aimed at improving the performance of the bank and will not have any adverse impact on the normal day-to-day operations, including acceptance/repayment of deposits in the normal course,” it stressed.
The RBI puts banks under PCA norms if it is concerned about their weak financial performance for a sustained period on parameters of capital ratios, asset quality and profitability and is aimed at helping them take a corrective course of action.
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Banks have to reduce lending to corporates and also work on lowering exposure to specific sectors. Till the time the bank is under these norms, the RBI can place restrictions on branch expansion or dividend distribution.
The development comes at a time when Lakshmi Vilas Bank proposal for a merger with Indiabulls Housing Finance is pending with the RBI.
The Tamil Nadu based bank reported a significant rise in net loss at ₹237 crore for the quarter ended June 30, 2019 as against a net loss of ₹124 crore in the year-ago period. Its gross NPA as a percentage of gross advances, increased to 17.30 per cent from 10.73 per cent in the year-ago quarter and 15.30 per cent in the preceding quarter.
More read: All you wanted to know about Prompt Corrective Action
It had reported a loss of ₹894.10 crore in 2018-2019 as against ₹584.87 crore, a year ago.
The bank’s CAR and Tier I CAR stood at 6.46 per cent and 4.46 per cent as June 30, 2019 (7.72 per cent and 5.72 per cent as March 31, 2019) against the regulatory requirement of 10.875 per cent and 9 per cent.
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