RBI-Lakshmi Vilas Bank under prompt corrective action after directors probed for an alleged scam

India’s central bank announced a regulatory action on Lakshmi Vilas Bank, the lender stated in a statement on Saturday, at the same time that police have started probing the bank’s directors for alleged misappropriation of funds.

Lakshmi Vilas Bank is the latest Indian lender in India to face conflicts in an already troubled banking sector troubled with bad loans.

The Reserve Bank of India had initiated a so-called “prompt corrective action” due to the high level of poor loans on Lakshmi Vilas’ books, the lack of sufficient capital to manage risks and a negative return on assets for two continuous years, the bank said.

The RBI’s move was aimed at improving the bank’s performance and will not adversely affect its day-to-day operations, the statement added.

Under a corrective action, the RBI restricts lenders from issuing big corporate loans to decrease the lender’s concentration of risk, while also limiting the opening of new branches, among other actions.

Reuters reported on Friday that Indian financial services company Religare Finvest (RFL) has accused Lakshmi Vilas of misappropriating 7.9 billion rupees ($111.4 million) it remained with the bank as a fixed deposit, according to a copy of a complaint filed with the Economic Offences Wing of the New Delhi police.

The private lender told in a report on Friday that the registration of the police complaint against does not mean anything at this stage and that the bank will cooperate with the investigating agency and regulatory authorities.

The RBI’s action could be a set back to Lakshmi Vilas intends to blend operations with housing finance firm Indiabulls Housing Finance Ltd (IBHF) in a share-swap deal.

Various banks such as IDBI Bank, Central Bank of India and United Bank of India are too under RBI prompt corrective actions.

Lakshmi Vilas Bank:

Founded in the year 1926., Headquarters – Chennai, Tamil Nadu, Area Served – India, (MD & CEO) – Parthasarathi Mukherjee resigned on 28/08/2019, No of Employees – 3,565 as per (2016), source (wikipedia)