Laxmi Vilas downfall expected say, experts

Terming the amalgamation of Laxmi Vilas Bank with DBS Singapore as a culmination of its "slow decline", R.K Bakshi, former ED of the Bank of Baroda said that there was no evidence of system-wide malaise in the banking industry.

"Laxmi Vilas Bank was put under prompt corrective action," said Bakshi, speaking as part of a panel hosted by Faye D'Souza. He pointed out that the RBI had promptly stepped in to help the ailing back and had found an amalgamation for it that would avoid liquidation measures.

"Depositors should not be afraid; no scheduled commercial bank in our memory has been allowed to fail, resulting in a loss of even a single rupee for the depositor," he said.

Journalist Govindaraj Ethiraj who also took part in the panel noted that along with bringing in better management systems, the RBI also faced the uphill task of reassuring depositors.

"We should not underestimate the damage caused by anxiety," Ethiraj noted, referencing the failure of PMC bank that had led to heavy losses for small businesses. "We have not even yet come out of COVID, and these are the most anxiety-ridden times we've known."

R.D Bakshi pointed out that while many had apprehensions about the performance of banks, even during the pandemic, such fears had not been fully realised. Even though many people took moratoriums since it was declared on 1 March, the number of moratoriums had declined later.

"Bankers are made the villains in the piece but they made decisions thinking business as usual," the former ED said. Banking is a business, and the return of capital should not be looked down upon. If India becomes more business-friendly and less likely to look down upon return of capital to entrepreneurs, the path to recovery may be smoother. But the restructuring regulations put in place will only take effect if the economy continues to grow from now onwards, said Bakshi.