Indians have witnessed bad bank issues in the past few years. With many financial institutions collapsing aggressively and the economic slowdown that’s triggered by the pandemic, finding faith in such banks have become a tough task for the common people. The solution to the problem is still underway.
The 94-year-old financial institution collapsed due to unplanned actions
Laxmi Vilas bank has been operating in India for the last 94 years with its headquarters originated in Chennai. Its asset quality deteriorated since the last few layers and the ballooning NPAs also added to the woes. “In absence of any viable strategic plan, declining advances, and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses,” RBI said regarding LVB.
CARE ratings also faced deterioration
The credit rating agency also made a statement regarding the downgraded score of Laxmi Vilas bank. It stated, “The ratings assigned to the various debt instruments of The LVB have been placed on credit watch with developing implications with the moratorium imposed by Government of India (Gol) on LVB, after considering an application made by the Reserve Bank of India (RBI). RBI’s action comes on the backdrop of significant deterioration in the financial risk profile of the bank with weakened capitalization levels and in the absence of a credible revival plan.” Though RBI has proposed an amalgamation with the DBS bank, it is yet to be seen whether LVB takes up this proposal.
The deteriorating impact
For as long as these bank woes continue, people will start losing faith in the system. We already saw some of the leading banks and financial institutions collapsing since 2018 that includes yes bank, DHFL, PMC, and IL&FS which are big names in the sector. LVB too entered this list with its recurring losses and improper loan plan actions. If the share prices do not rise and LVB does not take the necessary steps to come to the crisis then RBI can take up actions against the bank which can damage their 94 years old reputation incessantly. We will have to wait for the results for a month till the moratorium continues.
The Policy Times suggestion
- If such bad bank problems persist, then the coming times can cause a major crisis in India’s fiscal growth. The RBI and the government must be more vigilant in such cases and take measures to identify such bad banks and implement strict guidelines before any mishaps occur.
- The customers of such banks or financial institutions must be aware of every policy that they are accepting while trusting these banks with their earnings. Also, the banks must be careful before providing big loans to their customers where they can face shortcomings easily that can lead to scams and frauds.