Lakshmi Vilas Bank under moratorium till Dec 16; withdrawals capped at Rs 25,000

The Lakshmi Vilas Bank (LVB), headquartered in Chennai, which has gone bust, was on Tuesday placed under moratorium till December 16 with the RBI placing a withdrawal cap of Rs 25,000 on depositors during this period. This limit will apply to more than one account maintained by the depositor.
However, depositors will be allowed to withdraw more than Rs 25,000 with permission from the RBI for purposes such as medical treatment, payment of higher education and marriage expenses.

The RBI was left with little room to manoeuvre, given the erosion of the bank’s net worth – which has been in a steady decline over the last three years – absence of any viable strategic plan, declining advances and mounting non-performing assets.

Back to the wall, the RBI has separately announced a draft scheme of amalgamation of the LVB with the DBS Bank India Ltd (DBIL). The regulator has assured depositors that their interests will be protected and there was no cause for panic.

DBIL is a wholly owned subsidiary of DBS Bank Ltd, Singapore, and has the advantage of a strong parentage. The capital injection will be fully funded from DBS' existing resources, the RBI said in a statement.

LVB had been scrambling to find a buyer for the past one year. The troubles for the bank started in 2019 when the RBI rejected a proposal for its merger with shadow lender Indiabulls Housing Finance. It was also reportedly in talks with Clix Capital for capital infusion and a possible merger. Lakshmi Vilas 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", the RBI further said in a statement.

Founded in 1926 by seven persons in Karur in western Tamil Nadu, the LVB had taken over nine banks in 1961-65 and expanded beyond the State from 1974 onwards.

The bank was placed under the Prompt Corrective Action framework in September last year in view of the breach of PCA thresholds as on March 31, 2019.

According to its official website, LVB has 563 branches, including seven commercial and one satellite branch. It also has five extension counters and 974 ATMs. The bank claims to have a presence in 16 states and three Union Territories.

According to the RBI's draft scheme of merger, on and from the appointed date, entire amount of the paid-up share capital and reserves and surplus, including balances in the share/securities premium account of the transferor bank, shall stand written off.

The bank’s board of directors has been superseded. An administrator has been appointed.

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