Placing Lakshmi Vilas Bank under the prompt corrective action framework cannot be construed as RBI having made up its mind on the lender’s merger proposal with Indiabulls Housing, governor Shaktikanta Das said Friday. He also advised all stakeholders not to draw any inferences now based on the punitive action on the South-based mid-sized lender.
Indiabulls promoters’ roots in the realty space has made the RBI decision on its merger proposal with LVB a keenly watched event, as the central bank has a pronounced distaste for the sector fraught with volatilities.
However, LVB’s low capital buffers, because of which it has been placed under PCA, has made it into difficult choice for the regulator as the merger will ensure it gets the gush of capital it needs. Asked if placing LVB under PCA should be seen as the RBI having made up its mind on the merger not going through, Das termed this as a “speculative question”.
“As long as a decision is given out in the public domain, it is not correct on our part (to interpret). I would not like to comment on individual cases till we come out publicly,” Das told reporters.
The Indiabulls management has been making public pronouncements on how they would bring down their stake if the merger goes through and as part of that have already started to exit the non-kosher realty businesses. The merger, announced in April 2018, has received all necessary approvals, but the all important nod from the RBI.
Das explained placing a lender under PCA framework is normal with lot of precedents and reiterated that this is a corrective measure to take care of “regulatory deviations or deficiencies”.
“The RBI has put banks under PCA to ensure that timely measures are taken to bring the bank back on the rails where there are certain deviations from regulatory framework we put it under PCA. It involves the taking certain steps to correct those regulatory deviations/deficiencies,” he said.
Till last financial year, as many as 11 state-run banks were under the PCA and only a few have come out of the curbs since then. The PCA involves curbs on fresh lending above certain thresholds and also expansion activities. Generally, the triggers for PCA are low capital buffers, higher NPAS and also networth erosion. Once the troubles get rectified, all the necessary steps are undertaken, the RBI gets a bank out of the framework.
Source: Business-Standard