If the RBI was not acting, it has now been forced to act – the shareholders of Lakshmi Vilas Bank (LVB) have ensured that RBI cannot not act, that too swiftly.

We usually take these notices for shareholding voting very lightly but what happened at LVB has shown that if shareholders decide, they can truly bring the company down to its knees. It was very assuring to know that shareholder activism is not dead; it raises its head intermittently whenever the sense of downing gets acute.

It’s a real pity that LVB has become what it is today. LVB is not just another bank, its history is long – it was set up after the World War 1, way back in 1926, a 94-years old bank. Like something out a story book, it was set up on the banks of the Amaravathi river in Tamil Nadu by seven businessmen. The objective of the bank was to help fund the business needs of small businessmen who belonged to the Vysya community. And did you know that it was the entrepreneurial spirit of LVB and the community which led to many others similar banks getting formed – Vysya Bank, Karur Vysya Bank. LVB was so well-to-do then that it gave the seed capital for setting up Andhra Bank. It was the 1960s when it really bloomed its best, taking over nine smaller banks and from 1970s onwards starting looking beyond Tamil Nadu. All was hunky dory till then, till such time when pangs of growth did not create restlessness. Contentment kills ambition but sometimes, ambition also kills.

Over a period of time, by 2009, the original promoters decided to let in others into the core group and they all wanted to grow but they forgot to align their aspirations with the vision and strategy, which was chalked out on-the-go. It is often seen in our Hindi films, the first half is very good but after the interval, the film falls apart, loses its grip – that’s what happened here. Till LVB followed the script, all was well but once they started pandering to the crowd, with no script in place, the floundering started.

Many say that this fate of LVB is because it diluted the main objective of the bank – serving the small businessmen of the vysya community and it moved beyond the comfort zone, trying to emulate the other banks, trying to become another me-too bank. And maybe therein lay the reason of its failure – trying to become what it was not. When you merely imitate and do not create an identity of your own, the run will not sustain for too long. Yes, there are other banks that have succeeded but for that, a strong promoter presence was also essential. Here, the original promoters over a period of time have continuously sold stake and diluted the very ethos of the bank, running like it they did 94 years ago though they projected themselves as a new-age bank. So, the image changed but internally it remained the same.

Time has finally run-out for LVB as well as RBI – there are only two options – either sell the bank to anyone willing to expand as LVB has a strong south presence or else merge it into another larger bank. There are rumours of PNB being urged to takeover or will there be someone like Prem Watsa’s Fairfax which took a 51% stake in Catholic Syrian Bank. A couple of years ago, there were many suitors; are they still interested is the question?

Looks like RBI has many decisions to make…..quick!