The RBI action will not have any adverse impact on its day-to-day operations, said Lakshmi Vilas Bank

Lakshmi Vilas Bank said on Saturday that the Reserve Bank of India (RBI) has initiated prompt corrective action proceedings against it. The move by the Reserve Bank of India is aimed at improving Lakshmi Vikas Bank's performance and "will not have any adverse impact on the normal day-to-day operations", the Chennai-based lender said in a regulatory filing early on Saturday. The RBI action on the bank comes a day after the Economic Offences Wing of Delhi Police opened a probe into Lakshmi Vilas Bank directors following allegations of misappropriation of funds.

Lakshmi Vilas Bank said the move by the regulator is on account of factors such as high net non-performing assets negative return on assets (RoA) for two consecutive years and high leverage. The RBI had carried out an on-site inspection of Lakshmi Vilas Bank on March 31.

The Reserve Bank of India has advised Lakshmi Vilas Bank on the restrictions put in place and the actions to be taken, and the private sector lender will report the progress of the compliance measures on a monthly basis, according to the regulatory filing. "The bank has taken note of for necessary compliance with progress to be reported on a monthly basis to RBI," Lakshmi Vilas Bank said.

The police investigation came after financial services company Religare Finvest accused Lakshmi Vilas of misappropriating Rs 790 crore it had kept with the bank as a fixed deposit.

The directors face charges of cheating, breach of trust, misappropriation and conspiracy, Lakshmi Vilas said in a statement on Thursday, adding that it was considering taking "appropriate legal measures".

On Friday, Lakshmi Vilas Bank said it is "committed to cooperate with the investigating agencies and regulatory authorities apparently in order to bring out the malicious attempts of RFL to mislead the public to cover up massive fraud indulged by their own promoters/ employees/ group companies".

India's banking sector has been roiled by defaults from housing finance companies and the RBI has taken charge of a leading co-operative lender this week. The country's banks are grappling with roughly $150 billion in stressed assets while its non-banking financial companies (NBFCs) are struggling with liquidity pressures.

Lakshmi Vilas Bank had said in April that it would merge its operations with housing finance firm Indiabulls Housing Finance in a share-swap deal.

On Friday, Lakshmi Vilas Bank shares closed 4.94 per cent lower at Rs. 36.55 apiece on the BSE, underperforming the benchmark Sensex index which declined 0.43 per cent.