In a scathing letter demanding a detailed probe into the culpability of the Reserve Bank of India in connection with series of troubled banks including Lakshmi Vilas Bank, Punjab and Maharashtra Cooperative Bank (PMC) and Yes Bank, C H Venkatachalam, General Secretary of the All India Bank Employees Association (AIBEA) asked: ‘Why didn’t the RBI see this coming? They have been conducting regular audits, so they should have advised Lakshmi Vilas Bank (LVB) to stay cautious’.

The letter comes soon after the RBI on November 17 placed the Tamil Nadu-based private lender Lakshmi Vilas Bank under a moratorium, capping withdrawals at ₹ 25,000 a month. The step was taken on the Reserve Bank of India’s proposal in view of the private lender’s worsening financial health.

The AIBEA has alleged that the management of cash-strapped Lakshmi Vilas Bank was responsible for heavy loans worth Rs 2,000 crore handed to borrowers such as Religare, Jet Airways, Cox and Kings, Nirav Modi group, Coffee Day Enterprises, Reliance Housing Finance, etc.

‘When the RBI was well aware of the continuous losses the bank was facing, it should have taken corrective measures,’ the association has questioned.

The central bank said that the financial health of the bank, which has 563 branches and deposits of Rs 20,973 crore, has ‘undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net worth’.

Lakshmi Vilas Bank, which required capital urgently due to its deteriorating asset quality, has been struggling to look for a buyer for the past one year. The private lender was reportedly in talks with Clix Capital for capital infusion and a possible merger.

‘RBI is a doctor for the banks, knows the ailments, but instead of giving medicines, they have aggravated the problem by declaring a death certificate,’ Venkatachalam told The Quint.

The RBI has replaced the board of directors of LVB for 30 days and appointed TN Manoharan, the former Non-Executive Chairman of Canara Bank as Administrator. The bank was also stopped prompt corrective action (PCA) norms indicating that it required correction.

‘It is a traditional small-sized community-based bank that has its own brand value and enjoyed the support of the people. It is a very conservative bank. But since the last four years, they have been trying to modernise the bank and now they have gotten into a problem. A crow cannot become a peacock. A crow will always be a crow but has its own purpose. The RBI should also know the limitations of such a bank,’ Venkatachalamadded.

‘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,’ AIBEA has demanded.

Lakshmi Vilas Bank Crisis

Lakshmi Vilas Bank was founded in 1926 to finance businesses and industries in Tamil Nadu. The bank then expanded to Maharashtra, Karnataka, Kerala, New Delhi, Madhya Pradesh, Gujarat and Kolkata.

Over the last three years, the bank was struggling with bad loans, governance matters and mergers. The troubled bank was not given permission to merge with Indiabulls Housing Finance in 2019 by the central bank.

Last month, Laksmi Vilas Bank founder, KR Pradeep said that there was no liquidity problem and said that they had a liquidity coverage ratio of 260 per cent as against the required 80 per cent.

In September, the RBI had appointed a three-member committee under banker Meeta Makhan to help the cash-strapped private sector lender, after its shareholders voted out seven of its directors.

The RBI on Wednesday, 18 November announced a draft scheme of amalgamation of LVB with DBS Bank India Ltd (DBIL). ‘DBIL is a wholly-owned subsidiary of DBS Bank Ltd, Singapore (DBS), which itself is a subsidiary of DBS Group Holdings Limited has the ‘advantage of a strong parentage’, RBI said.

Also Read: RBI Limits Withdrawal From Lakshmi Vilas Bank At ₹25,000 Citing Bank’s ‘Worsening Financial Health