Posted By: Admin
It has been just over a day since Lakshmi Vilas Bank (LVB) has been placed under an RBI supervised Moratorium, and simultaneously DBS Bank ( Development Bank of Singapore) has been invited to take over the beleaguered LVB. This is the second private sector bank that has suffered this consequence in recent times and the nth financial entity after IF&LS, YES Bank, PMC Bank, DHFL among the many that have gone bust in the recent times. What ails the financial sector ? is this an exception or is the problem systemic in nature ?
One common thread we are seeing in many of these financial busts are caused by large corporate loan defaults. Take the case of LVB, it was a small bank right up to 2016-17, modest in its growth and aspirations. However the management then decided that they would grow aggressively and expand their loan book quickly by lending to corporates. While this appears very attractive since it provides a quick growth for the bank, it often comes with strings attached. If the loan book is not carefully managed, one could end up in huge defaults, which it how it seems to have played out for LVB. In a short time, a small modestly growing bank is caught in a quagmire of huge corporate loan default , added to that the liquidity crisis in the last few years, the covid pandemic was the proverbial last straw on the camel’s back. With RBI turning down India bulls as a suitor more than a year ago and PE funded Clix Capital was the last hope, which vanished when the deal did not materialize pre diwali was thought. Seems like RBI sensed that the bank was facing cash flow issues and worked overtime over the Diwali weekend to pull of a coup of sorts. A few highlights of the moratorium,
The move will bring curtains down on a 94 year old institution that has been safe house for generations of south Indians esp. in Tamil Nadu. Started in 1926 by seven businessmen of Karur under the leadership of Shri V.S.N. Ramalinga Chettiar, the bank has overcome all odds to grow to its current Stature ( over 20,000 crores of Deposits, 17,000 Crores of advances, with a branch network of over 566 branches mostly across the south India). This story brings to bear that when you move away from your core strengths and roots, you run of risk of being destroyed. The bank which for almost 90 years was a refuge for small and medium enterprises across rural centers in Tamil Nadu, decided to suddenly change tack to move to lending to big corporates, there it met its end. Another instance of Greed resulting in the death of an enduring institution.
The key lessons for investors /depositors from the LVB saga :
The worst affected in all this are the Senior citizens who depend on the interest that these deposits generate to live their twilight years, now find themselves in increasingly uncertain times.
( All the above information has been gathered based on facts appearing in press, and have not been independently verified, you are requested to use your diligence to check the veracity of the above facts before taking any financial action)
For your financial Sherpa, Contact us today
Write to us email@example.com
You an also subscribe for more details by clicking at the link below: