Lakshmi Vilas Bank Put Under Moratorium, Withdrawal Cap Of Rs 25,000 Imposed; Know All About It

RBI, in consultation with the Central government, has superseded the board of directors of LVB for a period of 30 days owing to a severe deterioration in the financial position of the bank.

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Mumbai: In a sudden twist in the ongoing race for cash strapped Lakshmi Vilas Bank (LVB), the central government on Tuesday placed Tamil Nadu-based private sector lender under moratorium and capped withdrawal from the bank at Rs 25,000 for one month.  However, to meet the cost of medical treatment, payment of higher education, and to cost marriage expenses, depositors will be allowed to withdraw more than Rs 25,000 with permission from the Reserve Bank of India (RBI), said a Finance Ministry statement. The government took the step based on an application made by the RBI, given the declining financial health of the private sector lender. "In the absence of a credible revival plan, with a view to protect depositors' interest and in the interest of financial and banking stability, there was no alternative but to apply to the central government for imposing a moratorium under Section 45 of the Banking Regulation Act, 1949," said an RBI statement assuring depositors of LVB that their interests will be fully protected and there is no need to panic. RBI, in consultation with the Central government, has superseded the board of directors of LVB for a period of 30 days owing to a severe deterioration in the financial position of the bank. TN Manoharan, former non-executive chairman of Canara Bank, has been appointed as the administrator. In September this year, the Reserve Bank of India appointed a three-member committee chaired by Meeta Makhan to run the cash-strapped private sector lender after its shareholders voted out seven directors. In the recent past, a similar situation had arisen for depositors at PMC Bank in September last year and YES Bank in March this year. On March 5, 2020, a similar moratorium had been imposed on Yes Bank, which was later rescued by an SBI-led consortium. Of late, the bank had posted a net loss of Rs 396.99 crore for the quarter ended September 30, with the percentage of gross non-performing assets standing at 24.45%. LVB had reported a loss of Rs 357.17 crore for the corresponding quarter last year. LVB needed capital urgently due to deterioration in asset quality and scrambled to find a buyer for the past year. It was reportedly in talks with Clix Capital for capital infusion and a possible merger.

Merger With DBS Bank

Meanwhile, RBI announced a draft scheme of amalgamation of LVB with DBS Bank India Ltd (DBIL), a wholly-owned subsidiary of DBS Bank Ltd, Singapore (DBS), which is a subsidiary of Asia's leading financial services group, DBS Group Holdings Limited, has the advantage of a strong parentage, the apex bank said in a press note. According to RBI, DBIL has a healthy balance sheet with strong capital support. As of June 30, 2020, its total Regulatory Capital was Rs 7,109 crore (against the capital of Rs 7,023 crore as of March 31, 2020). As of June 30, 2020, its GNPAs and NNPAs were low at 2.7% and 0.5%, respectively; Capital to Risk-Weighted Assets Ratio (CRAR) was comfortable at 15.99% (against the requirement of 9%); Common Equity Tier-1 (CET-1) capital at 12.84% was well above the requirement of 5.5%. "The rapidly deteriorating financial position of Lakshmi Vilas Bank relating to liquidity, capital, and other critical parameters, and the absence of any credible plan for infusion of capital has necessitated Reserve Bank of India to take immediate action in the public interest and particularly in the interest of the depositors," RBI said while inviting invited suggestions and objections, if any, from members, depositors and other creditors of transferor bank (LVB) and transferee bank (DBIL). Ahead of the announcement, shares of LVB closed 0.96% down at Rs 15.50 in a firm Mumbai market on Tuesday.