RBI places Lakshmi Vilas Bank under PCA framework on grounds of high net NPA and insufficient CRAR

Mumbai, September 28: Setting an interrogative sequence right on the proposed merger of Indiabulls Housing Finance Ltd with Lakshmi Vilas Bank, the Reserve Bank of India on Saturday moved up placing the private bank under its prompt corrective action framework.

 

“The Reserve bank of India, vide their letter dated 27 September, 2019 has initiated prompt corrective action for Lakshmi Vilas Bank Ltd on account of high net NP A, insufficient capital to risk weighted assets ratio (CRAR) and common equity tier-1 (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 31 March, 2019", the statement read.

 

 

The regulator has also advised the bank on the restrictions put in place and the actions to be taken by the bank, with progress to be reported on a monthly basis to the RBI. "For FY19, the bank’s net NPA stood at 7.49%, capital adequacy ratio was at 7.72% and its RoA was -2.32%", the statement added.

 

Replying straight over the RBI move, the private lender, in a statement cleared that the mere registration of FIR against the bank did not mean anything at this stage. “The bank is committed to cooperate with the investigating agencies and regulatory authorities apparently in order to bring out the malicious attempts of RFL to mislead the public to cover up massive fraud indulged by their own promoters, employees, group companies", the bank said.

 

Under PCA, the banks are mandated to cut lending to corporates and focus on reducing concentration of loans to certain sectors. They are also restricted from opening new branches and paying dividends. Banks currently under PCA are United Bank of India, Indian Overseas Bank, Central Bank of India, IDBI Bank and UCO Bank.

 

The RBI PCA framework was introduced in December 2002 as a structured early intervention mechanism along the lines of the US Federal Deposit Insurance Corp.’s PCA framework. Subsequently, in 2017, the framework was reviewed based on the recommendations of the working group of the Financial Stability and Development Council on Resolution Regimes for Financial Institutions in India and the Financial Sector Legislative Reforms Commission.