RBI Must be Blamed: Bank Employees Association on LVB’s Collapse

The AIBEA alleged that the management of the Lakshmi Vilas Bank (LVB) was responsible for hefty loans.

3 min read
RBI Must be Blamed: Bank Employees Association on LVB’s Collapse

“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,” said C H Venkatachalam, General Secretary of the All India Bank Employees Association (AIBEA).

The AIBEA alleged that the management of the bank was responsible for hefty 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.

The cash-strapped LVB is the latest in line of a series of banks such as Punjab and Maharashtra Cooperative Bank (PMC) and Yes Bank, to go under.


‘RBI Needs to Be Questioned’

AIBEA has demanded a thorough probe into the culpability of the RBI. They say when the RBI was well aware of the continuous losses the bank was facing, it should have taken corrective measures.

“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The RBI has superseded the board of directors of LVB for 30 days and appointed TN Manoharan, the former Non-Executive Chairman of Canara Bank as Administrator.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 put off prompt corrective action (PCA) norms indicating that it needed correction.

AIBEA has demanded a thorough probe into the culpability of the RBI.
(Photo Courtesy: All India Bank Employees Association)

He also blamed the bank’s mismanagement for its downfall.

“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,” he added.

‘RBI Cannot Be So Arbitrary’

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

Over the last three years, the bank was reportedly struggling with bad loans, governance issues and mergers that fell through.

The bank was denied permission to merge with Indiabulls Housing Finance in 2019 by the RBI and even the merger with Clix Capital didn’t work out

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 stated.

Venkatachalam asked,

“How can you decide overnight that DBS is the right bank to take over? In public interest, why is this transfer not been transparent? We are in a mockery not democracy. RBI cannot be so arbitrary. Why should a Singapore-based bank take over? Besides, this reflects poorly on our country. DBS must be stopped and there should be an open transparent bidding.”

‘People Will Lose Trust in Banking System’

The Quint spoke to a few customers who said they were shocked to hear the news and are worried about their money.

“We are a simple middle-class family and all our savings are in the account. We have withdrawn the limit of Rs 25,000 for now but we are worried about the future of our money,” said a 30-year-old woman on the condition of anonymity.

“This is creating panic and making people lose trust in the banking system,” another customer said.

The capping of withdrawal limit of ₹ 25,000 is imposed for 30 days, that is, till 16 December 2020. During this time, customers cannot withdraw money from their savings account, current account, or fixed deposits.

The RBI has assured depositors of the bank that their “interest will be fully protected and there is no need to panic.” However, the fate of equity shareholders is still uncertain.

“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 demanded.

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