Lakshmi Vilas Bank: AIBEA Wants Officials of RBI Also Probed; Demands Merger of LVB with a PSB
While seeking merger of Lakshmi Vilas Bank (LVB) with a public sector bank (PSB), the All India Bank Employees' Association (AIBEA) has demanded a probe into all those who were on watch, including nominees of Reserve Bank of India (RBI) on the board of LVB and others, for the huge bad loans of about Rs2,000 crore, which took down the Bank.
 
In a statement, CH Venkatachalam, general secretary of AIBEA, says, "RBI, which is responsible to maintain the stability of the banks and financial sector cannot escape its responsibility for not taking timely action. RBI’s role should be thoroughly probed. Moreover, some top management officials of LVB are responsible for the huge bad loans in the Bank and action should be taken on them."
 
Speaking with IANS, Mr Venkatachalam alleged, that the decision of RBI to palm off 94-year-old bank to DBS Bank India Ltd, a wholly-owned subsidiary of Singapore-based DBS Bank Ltd, smacks of arbitrariness and lack of transparency. "There would have been several groups interested in LVB with its extensive branch network and deposit base. The RBI did not make any open bid for LVB. From where DBS Bank India came in and how RBI zeroed in on that bank is not known," he says.
 
He charged RBI of handing over LVB to DBS Bank India overnight in an arbitrary manner. "The fundamental question is why only DBS Bank India and why not others? Why no bids were issued? It is agreed that RBI may have powers, but those powers should be exercised in a transparent manner and not arbitrarily," Mr Venkatachalam said.
 
AIBEA says, the then management of LVB had indulged in a lot of bad loans of more than Rs2,000 crore to borrowers like Religare, Jet Airways, Cox and Kings, Nirav Modi group, Coffee Day, and Reliance Housing Finance. "All these undesirable loans were known to RBI as it had its nominee as director on the Board of the Bank. The Bank was put of prompt corrective action (PCA) norms indicating that the Bank needs correction. But unfortunately, a very long rope has been given to the Bank and today, the RBI has announced moratorium," it added.
 
On Tuesday, RBI said the financial position of the LVB has undergone a steady decline with the Bank incurring continuous losses over the last three years, eroding its net worth.
 
In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. RBI says, "LVB has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses. Further, the bank is also experiencing continuous withdrawal of deposits and low levels of liquidity."
 
"It has also experienced serious governance issues and practices in the recent years which have led to deterioration in its performance. The bank was placed under the PCA framework in September 2019 considering the breach of PCA thresholds as on 31 March 2019," RBI said.
 
According to RBI, it had been continually engaging with the management of LVB to find ways to augment the capital funds to comply with the capital adequacy norms.
 
The LVB management had indicated to RBI that it was in talks with certain investors but failed to submit any concrete proposal.
 
Further, LVB's efforts to enhance its capital through amalgamation of a non-banking financial company (NBFC) with itself appears to have reached a dead end, RBI said.
 
According to RBI, it has come to the conclusion that in the absence of a credible revival plan, with a view to protect depositors' interest and in the interest of financial and banking stability, there is no alternative but to apply to the Central government for imposing a moratorium under Section 45 of the Banking Regulation Act, 1949.
 
Accordingly, after considering RBI's request, the Central government has imposed moratorium for 30 days effective from 17 November 2020.
 
As per the draft amalgamation scheme, RBI has said on and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank (LVB), shall stand written off.
 
On and from the appointed date, the transferor bank shall cease to exist by operation of the scheme, and its shares or debentures listed in any stock exchange shall stand delisted without any further action from the transferor bank, transferee bank (DBS Bank India) or order from any authority.
 
As regards LVB employees, they will continue in service and be deemed to have been appointed in the DBS Bank India at the same remuneration and on the same terms and conditions of service, as were applicable to such employees immediately before the close of business on 17 November 2020.
 
However, the RBI scheme also provides for DBS Bank India to discontinue the services of key managerial personnel of LVB after following the due procedure at any time, after the appointed date, as it deems necessary and providing them compensation as per the terms of their employment.
 
Similarly, DBS Bank India shall have the option of merging LVB branches according to its convenience and may close down or shift the existing branches as per the extant instructions issued by the RBI.
 
LVB has a network of 563 branches while DBS Bank India has only 33. The amalgamation will give a jump-start for DBS Bank India with a readymade branch network.
 
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    COMMENTS

    tillan2k

    1 week ago

    The state of affairs would not reached if LVB did not have friends and patrons in RBI and Fin MIN . At material time Fin min overtly was friendly with south based banks

    ssbh.dceo

    1 week ago

    WHEN THIS COOKING WAS GOING ON, WHERE WAS UNIONLOOKING AT? WHY IT WAITED TILL RBI ACTION?.
    THERE IS NO POINT IN ARGUING IN THE POSTMORTEM SECENREO.

    saioamshyd

    1 week ago

    https://www.moneylife.in/article/lakshmi-vilas-bank-aibea-wants-officials-of-rbi-also-probed-demands-merger-of-lvb-with-a-psb/62123.html
    1. PSBs are, already, in doldrums. It is as good as opening a pandora's box.
    2. To loot the Indian wealth in Trillions & shift it across the borders was a way of life during Congress regime. Congress leadership, allegedly, looted INR.17 quadrillion[1 quadrillion=1000 trillion; 1 trillion=1 lac crore], which is 45 times more than Modiji's humble plan of mobilizing US$.5 trillion by selling India's Sovereign Bonds. There is a nexus between members of CVC, IBA & CORNERED & BRIBED-UFBU AFFILIATES LED BY CHV , PSB boards/CEOs/CMDs + Duds of DOFS/UFM, ruling politicians & fugitives, etc. Unless & until the nexus is broken & culprits are booked & punished- though opening a Pandora's box- no future for India.
    3. RBI/GOI efforts to andover LVB to DBS Bank is a last resort.
    4. https://www.youtube.com/watch?v=4Si8U02s8cQ.
    5. SATYAMAEVA JAYATHE!!!

    cvkakatkar

    1 week ago

    RBI was supposed to submit its reply to Chennai High Court on 18th Nov,2020, in a case filed by an Ex-Employee of LVB.
    RBI had to inform the action it has taken on various complaints against the Bank and action taken by the regulator. They preferred to close the issue by Moratorium and merger, just a day before the hearing.

    Ramesh Popat

    1 week ago

    why DBS only? There must be clear rationale for the same in the public.
    It would be better if new development takes place in this regards before
    20th Nov. Can there be other better existing permissible Indian suitors?

    REPLY

    tillan2k

    In Reply to Ramesh Popat 1 week ago

    this is Foreign direct investment

    Shivram_R

    In Reply to Ramesh Popat 1 week ago

    I believe DBS is a good choice because the practice of merging with PSBs and continuing to evergreen bad loans and hiding losses and net worth erosion for a later date should stop. This is a step in the right direction.

    saioamshyd

    In Reply to Shivram_R 1 week ago

    GM! I agree with you Shivram Ji! DBS Bank may take over entire Private Banks. LVB take over just with well-established infrastructure + manpower for Rs.2500 crore is the cheapest investment. If it is successful, DBS may take over all failed/failing private banks.

    Nahom

    1 week ago

    RBI is a key player in wealth loot from depositors to Cronies. It is universal : where the tiniest top of the wealth pyramid paupers the bottom base. This will not change. AIBEA has also vested interest in this food chain since they get the crumbs from the cronies. Only option for the oppressed is " suicide".

    REPLY

    cvkakatkar

    In Reply to Nahom 1 week ago

    LVB is not a part of AIBEA - so, there cannot be any hidden agenda behind this demand.

    sundarbtw

    In Reply to cvkakatkar 1 week ago

    They are part of AIBEA... except new age private banks all old bank employees are unionised

    Newme

    1 week ago

    DBS being a foreign bank their pay scale would be bigger than LVB. In a way, LVB are rewarded for the bank failures.

    rajoluramam

    1 week ago

    It is not clear about the position of perpetual bonds( debentures) of LVB takdn for the purpose of BASEL III COMP NCB SRX. CAN ANY BODY CLARIFY THE POSITION.

    sundarbtw

    1 week ago

    All the listed loans were given may be 5 years ago. That was the time every bank had given. The issue is other banks were minimum 10 times the size of LVB. LVB should have closed long back

    REPLY

    cvkakatkar

    In Reply to sundarbtw 1 week ago

    Correct that is the reason - the role of RBI Nominees and the then Board needs to be investigated.

    sundarbtw

    In Reply to cvkakatkar 1 week ago

    It is for the new owner to decide and not the government. It is a private bank. No tax payers money is put. Am sure new owner will go after corrupt employees

    sushilprasadassociates

    In Reply to sundarbtw 1 week ago

    It is next to impossible to close a bank - even the smallest - in any country or by any government. The repercussions for closing down banks are widespread and severe.

    sundarbtw

    In Reply to sushilprasadassociates 1 week ago

    Closure i mean extinguishing the equity value and looking for buyer. Many of the loans and deposits are linked to insiders and bank employees in these banks.. these banks were running like chit funds with limited clients. .

    Underlying Borrowers in Securitisation Market Are Now Shifting Focus to Revival from Survival: Report
    The underlying borrowers in securitisation transactions would now shift focus to revival of businesses and build-up of financial cushions over the next few months, from a six-month-long push for survival of businesses, by ensuring timely liquidity, says a research note. 
     
    In the report, India Ratings and Research (Ind-Ra) says, "While the moratorium provided relief to borrowers, it was unfavourable to the securitisation market as investors stayed away from purchasing pools, given the possibility of irregular cash flows in the initial months. The market subsequently picked up in vehicle loan pools and has also seen securitisations in products such as personal and gold loan segments. We anticipate a continued revival in the securitisation market as delinquency levels stabilise by fourth quarter (4Q) of FY21." 
     
    Ind-Ra says its rated structured finance transaction ratings predominantly remained stable between March 2020 and October 2020, with the exception of 25 securitisation transactions, three lease rental discounting transactions and one pooled loan issuance credit ratings which were placed on rating watch negative (RWN). This was due to expected COVID-19 related asset deterioration and/or changes in counterparty ratings, it added. 
     
    Ind-Ra says it will continue evaluating if the available credit enhancement (CE) is adequate for the rating level stresses, given that some of the transactions have started dipping into CE post-moratorium. Along the way, the ratings agency says it will recalibrate the base case default rate and recovery rates by reassessing the possible delinquency build-up in the rated transactions.
     
    The securitisation transactions placed on RWN have unsecured business loan pools in 14 cases, microfinance loan pools in five cases and construction equipment loan pools in six. 
     
    Ind-Ra says it relied on the collection efficiency trend to assess the performance of the portfolio during the moratorium. "However, we will now monitor the deterioration in the delinquency buckets and the expected credit cost by end-third quarter (3Q) FY21. This could result in a revision in our base case default rate and recovery rate assumptions. The pandemic’s impact on businesses and thereby on loan performance may be characterised by the two aspects – transient and structural," it added.
     
     
    According to the ratings agency, the immediate policy response to COVID-19 has been to prioritise business stabilisation and support recovery of the economy after the lock-down. 
     
    Ind-Ra says it believes that its rated securitisation transactions have overcome the transient impact without much credit events due to the withdrawal of lock-down in a gradual manner, the dispensation of moratorium and associated amendments in securitisation transactions and the availability of external CE in the transactions. 
     
    "Government induced liquidity measures such as emergency credit line guarantee scheme for micro, small and medium enterprises (MSMEs) sector would have also helped borrowers to manage liquidity. Through the course of the moratorium, we saw gross collections improving, lesser transactions dipping into external CE as the economic activities revived and borrowers exited the payment deferral under the moratorium," it added.  
     
     
    However, Ind-Ra says, the damage caused by the pandemic to businesses and individuals is immense in some pockets and the policy and liquidity measures might not have reached some of the most impacted segments. 
     
    "Unlike the quick rebound seen post demonetisation, the microfinance segment has been hit hard in some geographies and may continue to feel the strain of the pandemic as it curtails business opportunities for MSMEs. The eastern states in India were more severely impacted due other aspects including natural disasters," the ratings agency says, adding "given the small ticket size of loans, restructuring is not preferred for this segment, as per originators". 
     
    Similarly, it says, collections in the commercial vehicle loans segment were severely impacted during April-May 2020 reflected in the high number of transactions dipping into the CE, about 33% and 41% in April and May 2020, respectively. 
     
    The business loan segment, especially loan against property, turned out to be a robust sector with collections bouncing back to pre-COVID level for originators. "This is possibly due to higher propensity to repay loans secured by one’s self-occupied home or commercial space used for running businesses," Ind-Ra says.
     
    The ratings agency says its earlier expectation range of collection efficiency post-moratorium in its rated transactions, and actual collection metric averages (before moratorium – cumulative till March 2020, during moratorium – cumulative total collections including prepayment against pre-moratorium expectation in April-August 2020 and after moratorium – current collections against current demand in September 2020) is shown in below table.
     
     
     
    Ind-Ra says it assumed post-moratorium collection efficiency – maximum and minimum - as depicted above was initially assumed by the agency for the stress period post moratorium. "As can be seen in all the asset classes, the average gross collections during moratorium were either better than these initial assumptions or within assumed range," it adds.
     
    The average gross collections in the transactions, including prepayments and advance collections, in September 2020 was home loans:163%, microfinance loans: 97%, secured business loans: 212%, tractor loans: 195%, unsecured business loans: 86% and vehicle loans: 129%. 
     
    Ind-Ra says its models have recalibrated the transaction collection efficiency assumptions on the basis of the actual collections being reported by the transactions and collections in microfinance and vehicle loan pools are yet to recover significantly for some originators.
     
    The ratings agency says it believes that the structural delinquency is here to stay as a consequence of the expected behavioural shift in the investment and consumption pattern in the medium-term impacting individuals and businesses. 
     
    It says, "The subdued aggregate demand in the urban sector, adverse productivity because of labour dislocation, and funding availability are some of the factors that can prolong, and bring in uncertainty in, the recovery. Although the spread of pandemic in the country seems to be contained for the past couple of weeks, downside risks persist with a possible renewed surge in infections exacerbated by a situation where a vaccine is not commercially ready. However, any recovery could be prolonged and uneven with the spread of the virus keeping the environment uncertain."
     
    Given these aspects, Ind-Ra says it is closely monitoring the delinquency build-up and CE utilisation in rated transactions. The collections in September 2020 (shown in above table) indicates the trajectory of delinquency of the asset classes and a meaningful delinquency measure is expected to be visible by January 2021.
     
     
    As the moratorium period ended, the ratings agency says, transactions specifically with unsecured business loans, vehicle loans and construction equipment loan pools have again started dipping into external CE for investor pay-outs as shown in above figure. 
     
    These transactions generally have the timely-interest timely-principal structure and thereby collections were short of investor pay-outs. Transactions with other asset class pools including microfinance, tractor and home loan pools have not dipped into CE due to the transaction structure or adequate collections. 
     
    Ind-Ra says its rated microfinance transactions where the collections are still catching up, have the timely-interest ultimate-principal structure and thus are not utilising CE. "We are monitoring the ultimate payout date in such transactions for possible vulnerabilities," it added.
     
     
    Ind-Ra says it believes that an originator or servicer plays an important role in the Indian securitisation transactions, given the lack of a strong backup servicer market. The outbreak and subsequent lockdowns have accelerated technology adoption and the market witnessed swift re-engineering of lending models to cope up with the situation. 
     
    "As lenders continued operating with employees working from home, to the extent possible for health concerns, a range of new priorities and challenges have come up including business continuity risks, social distancing for frontline collections staff, workforce productivity and security risks," it says.  
     
    The originators had closed all their branches during the nation-wide lockdown announced in March and thus, business activities were impacted significantly due to logistical and operational challenges. As the economy opened up in a phased manner in May, originators gradually opened their branches other than the ones in containment zones and some of them operating for a few hours in a day. 
     
    "Increased focus was on collections while keeping operating costs in check with some entities almost freezing their disbursements during this period. The situation on the ground required the collections staff to be nimble and constantly adapt to changing circumstances while maintaining social distancing norms and safety," Ind-Ra points out.
     
    It says, "Discussions with originators indicates that they have ramped-up their collection infrastructure aggressively, preferring digitisation of collections and moving staff members from other departments to collections. The originators played a key role in sensitising borrowers to repay on time by educating them about the implied cost and consequences of the moratorium, before the ex-gratia announcements." 
     
    "The originators are being prudent in selectively using support systems such as emergency credit line guarantee scheme provided by the government. The accelerated adoption of digitisation of loan documentation and customer verification could bring in efficiencies in the originator’s operating model. Due to these strategies, disbursements in select products including gold loans and two-wheeler loans remained steady even during moratorium," Ind-Ra added. 
     
    According to the ratings agency, servicers are confronted with challenges in terms of reconciliation of the borrowers’ cash flows with the investor pay-outs post the moratorium. 
     
    Structural changes such as temporary alterations in the payment mechanism from timely interest and principal payment to timely interest and ultimate principal payment, trapping of excess interest spread during the moratorium and any excess cash flows adjusted as prepayments have resulted in complications in reporting loan pool data, it says. 
     
    Furthermore, as per the regulator’s directives, lenders had to refund the difference between simple and compound interest collected on loans of up to Rs20 million during the COVID-19 loan moratorium scheme by 5 November 2020. 
     
    "This may require the originators to recalibrate borrowers’ cash flows in case they had charged compound interest on the loans outstanding in their books.
     
    "With timeline till 31 March 2021, one-time restructuring of loans could further require originators to revise the cash flows of borrowers," the ratings agency says.  
     
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    Bank Unions Say One Nation, One Salary Agreement Signed with IBA
    Four unions in the banking sector on Wednesday jointly announced that their three-year wage talks finally resulted in a written agreement with Indian Banks' Association (IBA).
     
    In a joint circular issued to their members the four unions—All India Bank Employees' Association (AIBEA), National Confederation Bank Employees (NCBE), National Organisation of Bank Workers (NOBW) and Indian National Bank Employees Federation (INBEF) said the 11th Bipartite Settlement on revision of wages and improvement in service conditions of bank employees has been signed today (Wednesday) with IBA at Mumbai.
     
    According to the unions, the increase in the wage bill will be about Rs3,385 crore for the 29 banks covered—12 public sector, 10 private and seven foreign banks—benefitting about five lakh bankers.
     
    The agreement period will be November 2017 to October 2022.
     
    The unions said the unique aspect of the agreement is the uniform basic, dearness allowance, house rent allowance, special allowance, transport allowance across the country for the bankers.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    muralidhard2002

    2 weeks ago

    Employee of a loss making psu bank enjoys same Salary as that of Profit making PSU bank? Level playing field!
    Moral of the story is ......

    m.prabhu.shankar

    2 weeks ago

    Not a good idea. The cost of living in Mumbai is completely different from a small town or a village. How can you say the house rent allowances, transport allowances etc...can be same for both ?

    Newme

    2 weeks ago

    Does this mean a banker in Bombay location would be paid same as those working in Nagpur branch at the same designation.

    ssbh.dceo

    2 weeks ago

    NO COVID-19 BENEFITS?

    PLEASE LINK WAGE REVISION TO PRODUCTIVITY.

    Mani Sriram

    2 weeks ago

    Does it mean the efficient one is paid same as the lazy one? Is there no incentive to leave a PSB and join a private bank?

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