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.