Auditors ‘qualify’ Lakshmi Vilas Bank Q2 accounts

Losing streak continues; capital adequacy  at precarious level

MUMBAI: For Lakshmi Vilas Bank Ltd (LVB), when it rains, it pours.

Such is the succession of misfortunes the bank has been confronting in the past few months or more.

The latest is that the auditors of the embattled bank have expressed ‘qualified opinion’ on its accounts for the second quarter ending September 30, 2019, (Q2), in respect to the questionable status of Rs794 crore loans the bank has extended to two companies.

The audit opinion on the financial statements for the year ended March 31, 2019 was also qualified in respect of this matter.

An auditor’s report is qualified when there is either a limitation of scope in the auditor’s work or when there is a disagreement with management regarding application, acceptability or adequacy of accounting policies, and this is viewed seriously in the financial services industry circles.

LVB, which had posted a loss of Rs894.10 crore for the financial year ended March 31, 2019, has posted loss to the tune of Rs357.17 crore for the second quarter of the current financial year too.

Further, RBI had initiated Prompt Corrective Action (PCA) on the bank on September 27 on account of continuous erosion in quality of assets & capital base, and negative return on assets (RoA).

Hardly two weeks from the PCA move, on October 9, RBI rejected the much-touted merger move by the bank with Indiabulls Housing Finance (IHFL), thus leaving the fate of the bank to anyone’s guess.

In fact the vexing issue in connection with the Rs794-crore loans has resulted in its accounts being qualified by the auditors.

It all started during the financial year 2017-18 when LVB adjusted loans aggregating to Rs794 crore extended to RHC Holding Pvt Ltd and Ranchem Pvt Ltd against deposits of another company, Religare Finvest Ltd.

The said adjustment has been contested by Religare Finvest and a suit was filed against the bank in May 2018 before the High Court of Delhi.

The matter still remains sub-judice, and has been taken up by Economic Offence Wing (EOW), Delhi, which has initiated proceedings against the directors and others of the bank. Meanwhile, Sebi has sought clarification on the matter from the bank.

However, the bank, based on the legal opinions obtained against the suit, believes the said appropriation is lawful and tenable and hence not made any specific provision on this score.

On the other hand, RBI had advised the bank to maintain provisions, on a prudential basis, to cover potential losses for the ‘Claim against the Bank not acknowledged as debt’ in respect of the matter.

The auditors pointed out that in case of any adverse judgment, the bank management would be required to provide an additional amount of Rs594 crore after considering the available contingent provision of Rs200 crore already provided in the books.

In such an eventuality, the bank is bound to witness substantial decline in its net-worth and with that effect, the bank’s already precarious capital adequacy ratio (CAR) will further fall sending the bank hunting for large capital infusion.

 

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