Quick RBI prescription needed for coma Lakshmi Vilas Bank

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Lakshmi Vilas Bank’s festering turmoil reminds us that proactive regulatory interference is the best course of action to protect the interests of depositors. The Reserve Bank of India (RBI) has both success and failure this year as a lesson in saving troubled banks. The Punjab and Maharashtra Co-operative (PMC) Bank has been an unfortunate disaster with its depositors at risk of losing money. On the other hand, the Yes Bank rescue was certainly faster and better orchestrated. Both cases concerned governance issues, which also bothers Lakshmi Vilas Bank shareholders.

In the case of this bank, the shareholders have taken the first step by eliminating the directors they believe are responsible for the mess.

On Friday, shareholders voted against the reappointment of seven directors, including the chief executive, at the annual general meeting.

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Deep rot

The central bank must pick up the ball quickly and put in place a plan to revive the bank. Obviously, his Quick Corrective Action (PCA) didn’t work. In fact, this regulatory quarantine which prohibits the bank from lending has only made the situation worse.

“This is an issue where the best date has already passed,” said Amit Tandon, founder and CEO of the proxy advisory firm Institutional Investor Advisory Services (IiAS). The advisory firm had warned shareholders about the bank’s governance ahead of the AGM on Friday.

As previously reported, RBI did not cover itself in glory after PMC Bank’s disastrous result. But that could escape blame since the operations of cooperative banks are also overseen by state governments. However, any delay posted with Lakshmi Vilas Bank would reflect badly on the regulator.

Lakshmi Vilas Bank has seen its gross bad debts triple, its advances contract by 30% and its capital shrink over the past three years. The bank also saw three CEOs and futile attempts to attract investors during this time.

But the biggest problem for the bank is its inability to provide capital. Lakshmi Vilas Bank, in all respects, is insolvent because it has negative equity. The eviction of the directors made the ongoing negotiations with Clix Capital for the sale of shares uncertain. “The case of the bank is quite complicated. Its performance does not attract the right investors. And investors whose bank wanted to get money failed to make their voice heard from the regulator. Only the regulator can solve this problem, “said a consultant on condition of anonymity.

Analysts believe the best course of action is, unfortunately, a forced marriage for the bank. Meanwhile, his depositors are not sitting for a solution. Bank deposits have fallen 26% in the past year. This shows that depositors have realized the problems.

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