RBI was blamed because they had not warned Lakshmi Vilas Bank to be cautious. VB was alleged by the AIBEA that the major problem was with the management of the Lakshmi Vilas Bank. It had handed loans worth Rs.2,000 crores to Religare, Airways, Coffee Day Enterprises, and Reliance Housing. LVB is the latest bank after the series of banks to go under. AIBEA has demanded that the RBI has to be probed thoroughly. The reasons why the RBI had not taken corrective measures also have to be enquired.
Venkatachalam stated that the RBI has failed as a doctor to the banks, by giving the banks a death certificate rather than trying to cure the problem by treatment. It was reported that the bank had also put up a prompt corrective action that needed correction. There were also many problems with the management of the bank. It is a small community bank that was very conservative. Since the past four years there have been attempts to modernize the bank, which has led to the problems.
LVB was founded in 1926 with the need to set up industries in Tamil Nadu. There they expanded through branches in Maharashtra, Kerala, New Delhi, Madya Pradesh, Kolkata, and Gujarat. RBI denied the permission for the bank to join Indiabulls Housing Finance. On Wednesday RBI announced a draft scheme of LVB and BDS bank to be amalgamated. This move has widely been criticised for the lack of transparency and public interest.