Withdrawal from Lakshmi Vilas Bank capped at Rs 25,000 till Dec 16, to be merged with DBS India

Withdrawal from Lakshmi Vilas Bank capped at Rs 25,000 till Dec 16, to be merged with DBS India

RBI on Tuesday announced that The Lakshmi Vilas Bank has been placed under moratorium by the Union Ministry of Finance till December 16 of this year. This decision by the Ministry of Finance at the request of the Reserve Bank of India was prompted by a "steady decline" in the Lakshmi Vilas Bank's financial position over the last three years.

With the moratorium in force effective immediately, withdrawals for customers of the privately-owned Lakshmi Vilas Bank have been restricted to no more than Rs 25,000 for now.

Asserting that the Lakshmi Vilas Bank has been eroding its net worth, the RBI said in a press release that it has been placed under moratorium in the "absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs)".

1. The RBI has also announced a draft scheme to amalgamate the Lakshmi Vilas Bank with DBS Bank India, a wholly-owned subsidiary of DBS Bank Ltd, Singapore. If the scheme is approved, DBS Bank will inject Rs 2,500 crore into DBS Bank India. The capital injection will be fully funded from DBS' existing resources, the RBI said in a statement.

2. On Tuesday, the RBI also superseded the Board of Directors of the Lakshmi Vilas Bank and appointed former non-executive chairman of Canara Bank, TN Manoharan as the administrator of Lakshmi Vilas Bank.

3. In September 2019, the Lakshmi Vilas Bank was placed under the Prompt Corrective Action (PCA) framework over breach of PCA thresholds as on March 31, 2019.

4. The RBI also said that it continually engaged with the management of Lakshmi Vilas Bank to augment the capital funds. However, the bank management "failed to submit any concrete proposal" to the RBI with respect to compliance with the capital adequacy norms.

5. Lakshmi Vilas Bank's "efforts to enhance its capital through the amalgamation of a Non-Banking Financial Company (NBFC) with itself appears to have reached a dead end", the Reserve Bank of India said in a statement on Tuesday.

6. While stating that the central bank made all possible bank-led and market-led efforts to revive Lakshmi Vilas Bank, the RBI said that none of these measures materialized even as the Lakshmi Vilas Bank continued to face regular outflow of liquidity.

7. A request to impose a moratorium on the Lakshmi Vilas Bank was made to the Central government by the RBI under section 45 of the Banking Regulation Act, 1949. The Union Minister of Finance adhered to the RBI's request and imposed a moratorium on Lakshmi Vilas Bank for 30 days effective November 17.

8. The RBI went further to add that the bank has failed to raise adequate capital to address issues around its negative net-worth and is also witnessing continuous withdrawal of deposits and low levels of liquidity.

9. Established in 1926 in Tamil Nadu's Karur, Lakshmi Vilas Bank obtained its banking license from RBI on June 19, 1958. The bank became a 'scheduled commercial bank' on August 11, 1958.

10. According to its official website, Lakshmi Vilas Bank has 563 branches, including seven commercial banking branches and one satellite branch. It also has five extension counters and 974 ATMs. The Lakshmi Vilas Bank claims to have a presence in 16 states and three Union Territories across India.