The Reserve Bank of India has placed troubled Lakshmi Vilas Bank under moratorium for one month. The central bank has also put a cap on cash withdrawal limit for depositors at Rs 25,000. The decision was taken in view of the bank’s deteriorating financial position and eroding net worth.
Reserve Bank of India, in a statement, said that the financial position of the Lakshmi Vilas Bank has undergone a serious decline in the past three years with the bank suffering continuous losses. It said that the losses are expected to continue in the absence of any viable strategic plan, mounting non-performing assets (NPAs) and declining advances. It said that the bank was unable to raise adequate capital for addressing concerns around its net worth. It is important to note that LBV was placed under the Prompt Corrective Action (PCA) framework in September 2019 for failing to meet requirements.
The RBI said that the bank was being put under moratorium under section 45 of the Banking Regulation Act, 1949 in order to protect the interest of the depositors. The bank has assured depositors that their interests will be fully protected and they should not panic. The central bank has also announced a draft scheme of amalgamation of LVB with DBS Bank India Ltd (DBIL). The central bank in its press note said that DBIL has a healthy balance sheet with strong capital support. The bank has invited suggestions and objections from members, depositors and creditors of LVB and DBIL on the draft scheme. The suggestions and objections will be received by the central bank till November 20.
RBI has also decided to supersede LBB’s board of directors and appointed former non-executive chairman of Canara Bank TN Manoharan as Administrator of the bank for the period of 30 days.