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  Crisis in Lakshmi Vilas Bank Lakshmi Vilas Bank (LVB) is in the news, obviously, for wrong reasons. Last week, its officials were arrested by the Economic Offences Wing (EOW) for allegedly adjusting fixed deposits worth Rs.794 cr. placed by Religare Finvest Ltd towards the loans of RHC Holdings and Ranchem. And now in the AGM held on 25 th September 2020, the shareholders have rejected the appointment/reappointment of 7 directors including the Managing Director and also the appointment of Statutory Auditors. Only three directors’ appointments have passed the test of AGM. LVB’s problems came out in the open with the publication of the financial results 2017-18. The bank which reported a net profit of Rs.256 cr. and Gross NPA of 2.67% (Rs.640 cr.) as on 31.03.2017 reported a net loss of Rs.584 cr. and Gross NPA of 9.98%(Rs.2694 cr.) as on 31.03.2018.   The audited financials of 2017-18 also carried a qualified opinion of the statutory auditors about the adjustment of loan...

Waiver of interest on instalment/interest payable during moratorium period   Whether the banks are right in charging interest on instalments or interest that became due and payable during the moratorium period is hotly debated in the Supreme Court and also in the media. As per reports, the government and regulator appear to have taken a stand that if the interest on “instalment not paid/interest charged in the account” is waived, it will affect the financial position of the banks badly, which are already under stress due to substantial increase/expected increase of stressed assets. The argument is weak on several counts. 1.     The court might say the stress in financial assets and consequent decline in the revenue has to be addressed by owners of the banks (including the government) and cannot be passed on to the honest borrowers, who have nothing to do with NPAs. 2.     Even if the court buys this argument, it might still say that not all banks have ...

  IF I WERE A BRANCH MANAGER OF A BANK TODAY Recently, I got the opportunity to interact, over phone, with a few branch managers of PSBs/private banks in Chennai, Coimbatore and Hyderabad.   All of them are reconciled to attend to banking activities physically (not online) in the COVID period, with no symptoms of even the end of its beginning in sight. Since no ‘new normal’ is available to banking activity in the COVID prone environment,   the bankers fine-tuned themselves to conduct the daily branch operations, meet the requirements of the customers visiting branches and interact with them at their work-places/homes, as if the business is as usual. However, apprehension is writ large in their faces when they appraise/sanction new/emergency/additional loans, restructure credit facilities and sell third party products like bancassurance, mutual funds etc. This is because the beneficiaries have not yet climbed up to the ‘new normal’ level, leave alone operating at their n...

Waiving Interest on Interest during Moratorium A person has filed a case in Supreme Court that the interest on the interest accrued and applied during the moratorium period 01.03.2020 to 31.08.2020 should be waived by banks, both for term loans and cash credit/overdraft accounts. While banks have every right to apply interest on the interest portion that has already been applied till it is paid off, the burden of interest on interest can be reduced in several ways. On 4th April 2020, I sent my suggestion to RBI as under:  (Quote) " RBI decision advising banks  (i) to extend a moratorium of three months on the equated monthly instalments or the normal monthly instalments in respect of all term loans outstanding as on 1st March 2020 and (ii) to defer the interest due on working capital facilities outstanding as on 1st March 2020 will definitely help every borrower to breathe easy and help him/her/the organisation to make use of this money in meeting other pressin...

  Insolvency Suspension Ordinance     As per the first moratorium given, RBI permitted Lenders to grant a moratorium on payment of Loan repayment instalments falling due between March 1, 2020 and May 31, 2020. But the insolvency suspension ordinance says that one can initiate insolvency proceedings in respect of defaults that occurred prior to March 25, 2020.  So what will happen to instalments that fell due between 1st March & 25th March 2020 but not paid on due dates? Will it be considered default for insolvency proceedings initiation  or will be given the benefit of moratorium by RBI?  Clarity is needed from both RBI and IBBI Regards Viswanathan Retired Banker

OFF-CYCLE REPO RATE AND REGULATORY CHANGES RBI Governor surprised everyone by convening the Monetary Policy Committee (MPC) meeting in advance (originally scheduled for June 3 to 5, 2020) to assess the economic risks arising due to the impact of ongoing COVID-19 pandemic. (i) Affordable lending rates to revive growth, (ii) keep the funds supply chain from the banks hassle free through various liquidity measures and (iii) ease the financial stress through supportive measures had been the hall mark of the RBI approach, ever since the present Governor assumed charge. The announcements were no different this time as well. Salient features: ü Policy Rate reduced by 40 bps and      Effective rates are:  Repo: 4.00%; Reverse Repo: 3.35%; Bank Rate/MSF: 4.25% ü Moratorium on term loan instalments and working capital interest extended upto 31.08.2020 (in effect six month moratorium from 01.03.2020 to 31.08.2020) and ü   Additional liquidity easing ...

WILL THE FINANCIAL STIMULUS REACH NEEDY AND REVIVE ECONOMY? Lot of home work has gone behind Hon'ble Finance Minister’s series of announcements made over five days, each day dedicated to particular sectors.  It really brought out the genuine intentions of the government to reach to the needy and also convert the most challenging moments into opportunities for revival.  There is an on-going debate that much of the Rs.20 lac cr. stimulus has been passed onto financial players like banks and public financial institutions and the impact on the fiscal budget is minimal.  Fiscal Deficit increases when the expenditure is more than the estimates and also when the revenue falls short of the estimates.  In the first quarter, India's GDP is expected to be only 45% of the estimates and consequently there will be a huge shortfall in tax revenues (50% comes from direct taxes).  However, there is no indication that the expenditure will come down by that level as main co...