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    Home / News / Business News / Lakshmi Vilas Bank under moratorium; withdrawals capped at Rs. 25,000
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    Lakshmi Vilas Bank under moratorium; withdrawals capped at Rs. 25,000

    Lakshmi Vilas Bank under moratorium; withdrawals capped at Rs. 25,000

    By Siddhant Pandey
    Nov 18, 2020
    01:14 am

    What's the story

    The Centre on Tuesday placed Tamil Nadu-based private sector lender Lakshmi Vilas Bank (LVB) under a moratorium for a period of one month, the Ministry of Finance said.

    Effective 6 pm Tuesday until December 16, borrowers will be allowed to withdraw only up to Rs. 25,000.

    The RBI also announced a draft scheme of amalgamation of LVB with DBS Bank India Ltd (DBIL).

    Details

    Finance Ministry acted after considering RBI's application

    The Finance Ministry said that it was placing the lender under moratorium exercising its powers under Section 45 of the Banking Regulation Act.

    The government took the step after considering an application from the Reserve Bank of India (RBI) in light of the bank's poor financial health.

    The government urged depositors to not panic, assuring them that their interests will be fully protected.

    Conditions

    Withdrawal limit of Rs. 25,000 imposed with some exceptions

    Depositors will be allowed to withdraw more than Rs. 25,000 only with permission from the RBI for unforeseen expenses such as medical treatment of the depositor or any person dependent on them, higher education and marriage expenses of the depositor or any person dependent on them, or an "unavoidable emergency."

    However, the maximum a person can withdraw under these circumstances is Rs. 5 lakh.

    Conditions

    Other moratorium conditions listed by the Ministry:

    The Ministry said the moratorium will not impact the bank from making payments toward any drafts or pay orders issued by the bank that were due as of November 17.

    It would also not impact the bank paying the proceeds of bills received for collection on/before November 17.

    Further, it will not affect granting of any loans/advances and making investments in any credit instruments.

    Amalgamation

    RBI proposes LVB, DBIL merger

    The RBI proposed the amalgamation of LVB and DBIL—a wholly-owned subsidiary of DBS Bank Ltd, Singapore, which in turn is a subsidiary of DBS Group Holdings Limited.

    DBIL has a healthy balance sheet with strong capital support, the RBI noted. DBIL will bring in additional capital of Rs. 2,500 crore upfront.

    The RBI invited suggestions to the draft scheme until 5 pm on Friday.

    Background

    LVB incurring losses for past 10 quarters

    The move comes as LVB had been scrambling to raise capital; it incurred losses for the past 10 quarters.

    In 2019, the RBI had rejected a proposal for its merger with shadow lender Indiabulls Housing Finance.

    The lender was reportedly in talks with Clix Capital for capital infusion and a possible merger.

    In September 2020, LVB's shareholders ousted seven directors.

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