On September 27, 2019, The country’s central bank, Reserve Bank of India (RBI) has put the Prompt Corrective Action (PCA) Framework against Lakshmi Vilas Bank (LVB) after an inquiry against the directors of the bank over the alleged fraud.
i. RBI puts the bank in PCA due to reasons like high net NPA (Non Performing Assets), insufficient capital to risk-weighted assets ratio (CRR) and Common Equity Tier 1 (CET1) negative RoA (Return on assets) 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 bank’s net NPA registered at 7.49%, capital adequacy ratio was at 7.72% and its RoA was -2.32% as on March 2019.
ii. The Economic Offenses Wing of the Delhi Police is investigating allegations of fraud and criminal breach of trust against the directors on the board of the bank. An FIR (first information report) has been lodged against the directors on a complaint from Religare Finvest Limited ( RFL ), which stated that the bank has rigged its FD (fixed deposit) of Rs 790 crore.
iii. United Bank of India, Indian Overseas Bank (IOB), Central Bank of India, IDBI Bank (Industrial Development Bank of India )and UCO Bank are currently under PCA framework.
iv. About NPA: A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
v. About RoA:It is a profitability ratio that provides how much profit a company is able to generate from its assets.
vi.About CRR: is the amount of funds that banks have to maintain with the Reserve Bank of India (RBI) at all times.
vi.About CET 1: It is a component of Tier 1 capital that consists mostly of common stock held by a bank or other financial institution.
To ensure that banks don’t go bust, RBI has put in place some trigger points (on the basis of Capital Adequacy Ratio (CAR- a metric to measure balance sheet strength), NPA and ROA ) to assess, monitor, control and take corrective actions on banks which are weak and troubled. The process or mechanism under which such actions are taken is known as PCA.The objective of putting it in the PCA is to improve the performance of the bank and to keep it free from any adverse effect on daily functioning.
About LVB: In April, LVB’s board approved a merger with mortgage financier Indiabulls Housing Finance Ltd in an all stock deal. The merged entity, will be called Indiabulls Lakshmi Vilas Bank. The proposed merger had also got the Competition Commission of India (CCI) nod in June.
Headquarters: Chennai, Tamil Nadu
Non – Executive Chairman: Shri. B K Manjunath
Tagline: The Changing Face of Prosperity