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Why did Lakshmi walk away from LVB?

How promoter KR Pradeep pushed a community-owned bank on the road to ruin 

Within the chartered accountant community in Chennai, the buzz on Lakshmi Vilas Bank did not sound favourable. Amid official denial it was clear that the institution with a 90-year history had crossed the line and done the unthinkable. That was two years ago in 2018 and LVB, as it is known, was said to be facing a systemic breakdown – allegations of favoured lending and potential defaults not being flagged off in time, were rife.

A report on the bank’s internal systems and processes with adverse comments was downplayed. A well-known chartered accountant in the city says that was an indication that things were going downhill. “There were a few other banks that were also involved but LVB being in that group was a shocker since it was known for high level of diligence,” he describes with incredulity.

Pretty soon, the bank which was set up in 1926 would face a crisis which would lead to the promoter losing control and equity holders being wiped out. Its gross non-performing assets hitting 25% would push it beyond redemption as suitors played hard to get. The story of how LVB ended up where it has is one of misplaced ambition, unbridled power and mismanagement by its promoter.

Lining up dominoes
In 2016, when the credit review committee at LVB sat down to assess a proposal from Mumbai-based Talwalkars, whose core business is fitness clubs, there was high level of discomfort. Unconvinced about the business model, it rejected the Rs.1.2 billion loan application with a terse “not safe”. It was assumed that the story ended right there.

A month later, an enthusiastic KR Pradeep, a director on the bank’s board, brought it up again. Instead of sanctioning a loan of around Rs.1.2 billion, he suggested LVB s


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Editor's Note

The curious case of Lakshmi Vilas Bank’s merger with DBS

The RBI has displayed hitherto never-displayed alacrity in merging Lakshmi Vilas Bank with Singapore’s DBS, sidestepping a credible deal on the table

An apocryphal tale goes: When legendary bank robber Willie Sutton was asked why despite repeated sentencing, he continued to rob banks, he answered: ‘because that’s where the money is’. Sutton is not around in this post-truth world to confirm if he indeed said that, but the robbing of banks continues, albeit in a sophisticated manner.

Banking is as protected a business as you can get, in India. Given its protected status, a banking licence is literally a licence to print money. But, as in most businesses, in banking, longevity is not an indicator of success. And the collapse of 94-year old Lakshmi Vilas Bank (LVB) just confirms that. Dig beneath the surface and you will find a familiar story of ill-advised lending driven by cronyism and lack of adequate diligence.

When you mix out-of-bound ambition with tardy le