What Is Going On At Lakshmi Vilas Bank?

What Is Going On At Lakshmi Vilas Bank?

Reminding Indians of the Yes Bank Crisis of 2020, RBI imposed a moratorium on Lakshmi Vilas Bank, barring the amount that can be withdrawn to ₹25,000 per month. Bank’s performance was already declining, which led to shareholders ousting 7 members from board of director. Let’s see what went wrong for the bank and what the future holds.

Crux of the Matter

About Lakshmi Vilas Bank
In 1926, seven businessmen from Tamil Nadu established a company to cater to the financial needs of small businesses. Then in 1958, it received a banking license and by 1970 the company obtained a pan-Indian presence. Currently, Lakshmi Vilas Bank (LVB) has a total of 566 branches and 918 ATMs and its headquarter is situated in Chennai. However, its focus has shifted from small businesses to large corporations.

Beginning Of The End
The saga began when Religare Finvest had invested ~₹794 crores in Fixed Deposits at LVB. LVB issued loans to investment firms of Malvinder Singh and Shivinder Singh – former promoters of pharma major Ranbaxy and Fortis Healthcare – against Religare’s FD. Religare alleged that the loan was given by the bank in its personal capacity and filed a case against LVB and the Singh brothers of misappropriating its funds.

RBI’s Intervention
After the case was filed, RBI put LVB bank under scrutiny and Prompt Corrective Action (PCA). Under PCA, the bank was restricted to issue fresh loans or to open a new branch anywhere.

Before RBI’s intervention, LVB tried the option of a merger to improve its financial situation but failed to seize any deal. Initially, LVB proposed a merger with India Bulls Housing Finance but the deal failed as LVB was put under the PCA framework. LVB also announced that it was in talks with Clix Capital for a merger, however, it also failed and Clix said that turmoil at LVB put the deal in jeopardy.

Removal of Directors
Taking into account all of the mentioned things, LVB’s shareholders removed 7 members from the board of directors including interim CEO & MD S Sundar. Thereafter, RBI appointed 3 external members, Meeta Makhan, Shakti Sinha, and Satish Kumar Kalra to look after day-to-day operations.

Repeat Of Yes Bank?
On 17th November, RBI imposed a 30-day moratorium on LVB and superseded its board. Withdrawal of only ₹25,000/month from savings and current accounts is allowed and emergency expense withdrawal is restricted at ₹50,000/month. It must be noted that small depositors get insurance cover on up to ₹5 lakh of deposits in banks from Deposit Insurance and Credit Guarantee Corporation (DICGC), an RBI subsidiary.

Merger with DBS Bank
To secure the interests of the depositors and stability of the financial sector, RBI announced the merger of LVB with DBS Bank, India, a subsidiary of DBS Singapore. DBS will bring in additional capital of ₹2,500 crores upfront to support the credit growth of the merged entity.

  • The Indian Financial System Code (IFSC) is an alphanumeric code that facilitates electronic funds transfer in India. A code uniquely identifies each bank branch participating in the three main Payment and settlement systems in India: NEFT, RTGS and IMPS.
  • The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India, it was not the first though. That honour belongs to the Bank of Upper India, which was established in 1863 and survived until 1913. 
  • In October 2019, Malvinder was arrested near Ludhiana, India, on account of a Rs. 740 crore fraud case against him and his brother Shivinder. The two have many cases of fraud registered against them.