RBI Put Lakshmi Vilas Bank under PCA Norms

Current context: Due to high bad loans and insufficient capital, RBI has put the Tamil Nadu based Lakshmi Vilas Bank under prompt corrective action framework.

 

• RBI has said that the marking of the bank under PCA aimed at not having an impact on the normal day-to-day operations of the bank
• The reasons cited by RBI for the action include:
1. High net NPA (gross NPA as a percentage of gross advances, increased to 17.30 %)
2. Insufficient CRAR and CET 1 (The bank’s CAR and Tier I CAR stood at 6.46 % and 4.46 % as of June 30, 2019, against the regulatory requirement of 10.875 % and 9 %)
3. Negative RoA for two consecutive years
4. High leverage, based on the on-site inspection under the Risk-Based Supervision carried out for the year ended March 31, 2019
• RBI helps the bank by taking a corrective course of action when the bank has a weak financial performance for a sustained period on parameters of capital ratios, asset quality and profitability
• The functioning of the bank put under PCA will be affected in these manners:
1. Banks have to reduce lending to corporates
2. Banks have to work on lowering exposure to specific sectors
3. The RBI can place restrictions on branch expansion or dividend distribution till the time the bank is under these norms

Question: 

Q: 1. Which bank has been recently put under the Prompt Corrective Action Framework by RBI?
a. Punjab & Maharashtra Cooperative Bank
b. Lakshmi Vilas Bank
c. South India Bank
d. SBM Bank