by Sandhya Krishnan
With the latest news of Lakshmi Vilas Bank (LVB) trending on all the news tickers, the bank's shares closed today hitting the 5% lower circuit. Religare Group’s financial mess seems to be getting murkier, with news of the alleged involvement of 92-year-old banking company Lakshmi Vilas Bank.
Earlier this year, LVB had been in the news over its surprise announcement of its plans to pursue a merger deal with Indiabulls Housing Finance (IBHF). There were voices of dissent raised by AIBEA against the rationale behind this deal (as IBHF had previously failed to obtain a banking license) citing the step as a short circuit route to become a bank. The share-swap deal is yet to see the light of the day, as it awaits RBI approval.
While its too early to comment on the validity of the ‘cheating, conspiracy’ charges levied by Religare Finvest Ltd.(RFL) against the Board members of LVB, it seems like the alleged financial misappropriation by Religare’s ex-promoters Malvinder and Shivinder Singh is catching many on the wrong foot. The Singh brothers are already embroiled in several legal cases on grounds of alleged financial fraud.
Questions swirl around money taken out of fixed deposits
The Economic Offences Wing (EOW) of Delhi Police filed a case against the Directors of LVB for alleged collusion with Religare’s former promoters Malvinder and Shivinder Singh. LVB has been accused of misappropriating Religare Finvest’s four fixed deposits, to the tune of over Rs 790 cr, kept with LVB. This in turn severely jeopardised the financial condition of RFL.
LVB on its part has denied the allegations as entirely ‘false and frivolous’ and dismissed the same as being issued ‘with the intention to malign the reputation of the bank’. The bank received the FIR on September 25, 2019 and is currently exploring legal options.
The complaint elaborated that RFL had opened two FDs worth Rs 400 cr in November 2016 and subsequently amounting to Rs 350 cr in Jan 2017. In July 2017, LVB had suo motu credited the FD proceeds and debited about Rs 724 cr from RFL’s current account without prior notice, as accused by RFL. RFL received a letter from LVB stating that the FDs had been a lien against loans sanctioned to RHC Holding and Ranchem, entities owned by the Singh brothers. RFL’s grievance remains that it had no knowledge of the security creation and denied having pledged any FDs towards loans extended to the above entities. RFL took legal recourse and filed a case against LVB in the Delhi High Court. The matter is sub judice.
The news about the involvement of LVB for alleged cheating, criminal breach of trust, criminal misappropriation and criminal conspiracy has taken a toll on the share price of the stock. The share price of LVB was already down by 58% this year when this news led to further declines. After hitting a record high on June 30, 2017, the share price has fallen 80% since
Banking sector in multiple controversies of late
The banking sector has seen multiple such controversies, and the reputation and trust in the sector has taken a hit. Recent negative coverage around ICICI Bank is yet another example of a private sector bank that got tarnished owing to fraud involvement by its CEO Chanda Kochhar. Kochhar was unceremoniously shown the door by ICICI when found guilty of gross violations of banking norms in the disbursal of loans to an energy business jointly owned by her husband and Videocon.
ICICI is still working to come out of the shadow of the scandal and win back the trust of its stakeholders. Sound credentials and integrity are significant for a sector that handles the money of its customers. After the ICICI episode, RBI has also taken a stronger stance, keeping a closer eye on fragile banks that are in the red and yet hold considerable savings of the public at large by way of deposits. One can only wonder - as shareholders or customers - if LVB will come out intact.