Lakshmi Vilas Bank Moratorium: Withdrawal restrcited to Rs 25,000; To be merged with DBS Bank

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Updated: Nov 17, 2020 11:01 PM

After considering the Reserve Bank’s request, the Central Government has imposed moratorium for 30 days effective from today.

The Reserve Bank has in 2013 allowed any interested party to install white label ATMs under own brand names. Representational image

The Lakshmi Vilas Bank was placed under an order of moratorium on November 17, 2020, which will be effective upto December 16, 2020. As per the RBI press release uploaded on its website on November 17, the financial position of The Lakshmi Vilas Bank has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth. In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses.

As per the government notification, these are to be followed:

The Central Government hereby also directs that during the period of moratorium, the Lakshmi Vilas Bank Limited shall not, without the permission in writing of the Reserve Bank of India,—

(a) make, in the aggregate, payment to a depositor of a sum exceeding Rs 25,000 lying to his credit, in any savings, current or any other deposit account, by whatever name called:

Provided that if a depositor maintains more than one account in the same capacity and in the same right, the total amount payable from all the accounts together shall not exceed the limit of Rs 25,000.

Provided further that wherever such depositor is having dues payable to the bank in any manner, either as a borrower or surety, the amount payable to such depositor shall be made after adjusting the relevant borrowal accounts;

Such limit, however, is relaxed under these conditions:

(i) in connection with the medical treatment of the depositor or any person actually dependent
on him;

(ii) towards the cost of higher education of the depositor or any person actually dependent on
him for education in India or outside India;

(iii) to pay obligatory expenses in connection with marriage or other ceremonies of the depositor
or his children or of any other person actually dependent upon him.

The Reserve Bank of India has today also placed in public domain a draft scheme of amalgamation of The Lakshmi Vilas Bank Ltd. (LVB) with DBS Bank India Ltd. (DBIL), a banking company incorporated in India under Companies Act, 2013, and having its Registered Office at New Delhi.

This will help depositors to secure their fixed deposits once the merger materializes.

Further, as per RBI, 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.

The Reserve Bank had been continually engaging with the bank’s management to find ways to augment the capital funds to comply with the capital adequacy norms. The bank management had indicated to the Reserve Bank that it was in talks with certain investors. However, it failed to submit any concrete proposal to Reserve Bank and the bank’s efforts to enhance its capital through amalgamation of a Non-Banking Financial Company (NBFC) with itself appears to have reached a dead end.

As such, the bank- led efforts through market mechanisms have not fructified. As bank-led and market-led revival efforts are a preferred option over a regulatory resolution, the Reserve Bank had made all possible efforts to facilitate such a process and gave enough opportunities to the bank’s management to draw up a credible revival plan, or an amalgamation scheme, which did not materialise. In the meantime, the bank was facing regular outflow of liquidity.

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. Accordingly, after considering the Reserve Bank’s request, the Central Government has imposed moratorium for 30 days effective from today.

The Reserve Bank assures the depositors of the bank that their interest will be fully protected and there is no need to panic. In terms of the provisions of the Banking Regulation Act, the Reserve Bank has drawn up a scheme for the bank’s amalgamation with another banking company. With the approval of the Central Government, the Reserve Bank will endeavour to put the Scheme in place well before the expiry of the moratorium and thereby 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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