The Reserve Bank of India (RBI) has put cash-starved Lakshmi Vilas Bank (LVB) under moratorium for one month and restricted its withdrawals at Rs 25,000 for the depositors, due to serious depreciation in the lender’s financial position.
In an official communiqué, 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 intervened after LVB shareholders disapproved an RBI-approved CEO and director in September this year. The regulator had okayed 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.
“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,” said RBI.
Further, the central bank has drafted a scheme of merger for LVB with DBS Bank of India and aims at completing the amalgamation process prior the end of moratorium period.
DBS Bank India, in its statement, stated that the proposed merger will be providing stability and better prospects to LVB’s depositors, customers and employees.
“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,” said DBS.