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