Lakshmi Vilas Bank: Next in the List of Failing Banks?

As usual, Lakshmi Vilas Bank, one of the oldest banks in India, is in the mode of denial that the bank is under huge pressure because of many key financial indicators of the bank sliding towards extreme negative side. However Reserve Bank of India (RBI) has already put it under Prompt Corrective Action (PCA) framework in Sept 2019 on account of high net NPA, insufficient Capital to Risk (Weighted) Assets Ratio (CRAR) and Common Equity Tier 1 (CET 1) and negative return on assets (RoA) for two consecutive years and high leverage.

The bank’s Capital Adequacy Ratio (CAR) and Tier I CAR for year ending on 31st March 2019 were 7.72 per cent and 5.72 per cent respectively against the regulatory requirement of 10.875 per cent and 9 per cent. These numbers have further deteriorated in next two quarters. Net loss in 2017-18 was ₹584.87 crore and ₹894.10 in 2018-19. Its cumulative quarterly loss for June, Sept and Dec 2019 stands at 928.91 which is already more than last year’s loss. Similarly capital adequacy ratios, gross NPA and bad loans have also deteriorated during the last three quarters of the current financial year.

However on account of liquidity coverage ratio, bank has claimed that its liquidity coverage ratio is higher than what is prescribed by RBI but a look on it quarterly filling tells a different story altogether and don’t seem to add up to the claims made by the bank. We can only hope that the recovery of NPAs is helping bank to improve its financial position. It would be a good news and bring sense of relief to the banking sector as well as the economy that Lakshmi Vilas Bank is not next in the list of failing banks.

Rajeev Upadhyay