Lakshmi Vilas Bank has been put under moratorium by the Reserve Bank of India (RBI) for 30 days, effective from 6:00 pm on November 17 till December 16. The action has been taken by the central bank on the basis of sub-section (2) of section 45 of the Banking Regulation Act, 1949.
Shortly after announcing the clampdown on Lakshmi Vilas Bank, RBI has announced a draft scheme of amalgamation for merging the troubled lender with DBS Bank. The Reserve Bank invites suggestions and objections, if any, from members, depositors and other creditors of both banks, on the draft scheme.
Under the moratorium, RBI has restricted withdrawals at Rs 25,000. Depositors with more than one account will be allowed to withdraw only Rs 25,000 from all their accounts. Depositors with dues payable to the bank will receive the mandated amount after their dues are deducted. The central bank has allowed withdrawals above Rs 25,000 in case of unforeseen expenses like medical emergencies, education expenses, etc.
RBI stated that the financial position of Lakshmi Vilas Bank has undergone a steady decline over the last three years, which is expected to worsen in absence of any viable strategic plan, declining advances and mounting non-performing assets.
"The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses. Further, the bank is also experiencing continuous withdrawal of deposits and low levels of liquidity. It has also experienced serious governance issues and practices in the recent years which have led to deterioration in its performance. The bank was placed under the Prompt Corrective Action (PCA) framework in September 2019 considering the breach of PCA thresholds as on March 31, 2019," RBI informed.
Lakshmi Vilas Bank failed to submit any concrete proposals to augment capital funds to meet the mandated capital adequacy norms, RBI stated. Moreover, its plans to merge a NBFC with itself to enhance its capital have reached a dead end. As efforts to revive the lender continued to fail, Lakshmi Vilas Bank faced regular outflow of liquidity, informed RBI.
"After taking into consideration these developments, the Reserve Bank has come to the conclusion that 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 is no alternative but to apply to the Central Government for imposing a moratorium under section 45 of the Banking Regulation Act, 1949," RBI said.
RBI assured the depositors of the bank that their interest will be fully protected and "there is no need to panic." The central bank further stated that it intends to implement the scheme of amalgamation for Lakshmi Vilas Bank with DBS Bank well before the expiry of moratorium to "ensure that the depositors are not put to undue hardship or inconvenience for a period of time longer than what is absolutely necessary".
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