Chennai: The Reserve Bank of India has placed ailing lender Lakshmi Vilas Bank (LVB) under moratorium citing mounting losses and rising bad loans.
The moratorium has been imposed for 30 days effective Tuesday, and withdrawals during this period will be capped at Rs 25,000.
The banking regulator, besides control of the struggling Lakshmi Vilas Bank, forced a merger with the local unit of Singapore’s largest lender DBS Bank. This is the first time the central bank has tapped a bank with a foreign parent to backstop an Indian rival.
As part of the merger process, the RBI said the Union government, on the request of the regulator, has capped deposit withdrawals at Rs 25,000 at LVB for a month.
In a statement, the RBI said: “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 thirty days effective from today.”
The banking regulator stepped in after LVB shareholders ousted an RBI-approved CEO and director in September. It had approved the constitution of a committee of three independent directors — Meeta Makhan, Shakti Sinha and Satish Kumar to manage day-to-day affairs of the bank.
According to the RBI, the financial position of Lakshmi Vilas Bank Ltd 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 apex bank has also drafted a scheme of amalgamation for LVB with DBS Bank of India and aims to complete the merger process before moratorium period ends.
DBS Bank India, in a statement, said the proposed amalgamation will provide stability and better prospects to LVB’s depositors, customers and employees.
It added: “To support the amalgamation, DBS will inject Rs 2,500 crore (SGD 463 million) into DBIL if the scheme is approved. This will be fully funded from DBS’ existing resources.”