Lakshmi Vilas Bank has been brought under moratorium effective 6 pm Tuesday. The moratorium caps withdrawals from the bank at ₹25,000 until December 16, 2020. The Reserve Bank of India has also superseded its board of directors, appointing TN Manoharan, a former non-executive chairman of Canara Bank as its administrator.
Further, the RBI has released a draft scheme to merge the bank with DBS Bank India - a subsidiary of the Singapore based DBS Bank that operates in the country. The RBI has invited suggestions from DBS Bank India, and members, creditors and depositors of theses on the proposed scheme. The RBI has stated that while DBIL is well capitalised, it will bring ₹2500 crore upfront to support credit growth of the merged entity.
The moratorium will be relaxed only for unforeseeable requirements like hospitalisation, education and events like weddings and marriages. However, even this cannot exceed ₹5 lakhs or the actual money in a depositor's account, whichever is less.
Under the moratorium, the cap applies to account holders across all accounts that they have with the bank. The cap also applies to payments made towards all creditors by the bank unless it consists of pay orders, drafts or cheques drawn on it and towards bills it received for collection before the moratorium. It also does not include payments towards liabilities from inter-bank borrowing or letters of credit or trade liabilities.
The moratorium follows reports indicating that the bank has failing financial health. The bank is facing a severe capital crunch, with a negative capital adequacy ratio, gross non-performing assets as high as 24.5% and net NPAs at 7.01%. It reported a ₹392 crore loss in the second quarter of the ongoing financial year, and as of publicly available information, is in talks with Clix Group for a merger as auditors have called for an urgent capital infusion. In October last year, the RBI did not approve LVB's merger proposal with Indiabulls Housing Finance.
This moratorium is slated to be the third high-profile banking moratorium in a little more than a year, in a throwback to September 2019 and March 2020, when the Punjab and Maharashtra Co-operative Bank and private sector lender Yes Bank had similar moratoriums imposed on them respectively. While the PMC Bank issue still persists, a coalition of banks led by the State Bank Of India infused capital into Yes Bank and got it running in a matter of two weeks.
Even this time, the RBI says, "The Reserve Bank assures the depositors of the bank that their interest will be fully protected and there is no need to panic... 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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