Reserve Bank of India (RBI) has placed loss-hit Lakshmi Vilas Bank Ltd under moratorium after superseding its management as the private lender’s efforts to find viable revival plan, either on its own for through market-led efforts.
The banking regulator also today placed in the public domain a draft scheme of amalgamation of he Lakshmi Vilas Bank Ltd. (LVB) with DBS Bank India Ltd (DBIL), a banking company incorporated in India, and having its registered Office at New Delhi.
RBI said the financial position of Lakshmi Vilas Bank 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 bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses.
Further, the bank is also experiencing continuous withdrawal of deposits and low levels of liquidity. It has also experienced serious governance issues and practices in the recent years which have led to deterioration in its performance. The bank was placed under the Prompt Corrective Action (PCA) framework in September 2019 considering the breach of PCA thresholds as on 31 March 2019.
LVB has been in talks with certain investors to raise funds for recapitalisation but failed so far to submit any concrete proposal, RBI said, adding that RBI’s effort to enhance LVB’s capital through amalgamation of a non-banking financial company (NBFC) also has reached a dead end.
RBI said it had made all possible efforts to facilitate such a process and gave enough opportunities to the bank’s management to draw up a credible revival plan, or an amalgamation scheme, which did not materialise. In the meantime, the bank was facing regular outflow of liquidity.
Under such circumstances, RBI said, it has come to the conclusion that 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 30 days effective today (17 November 2020).
The Reserve Bank has assured depositors of the bank that their interest will be fully protected and there is no need to panic. In terms of the provisions of the Banking Regulation Act, the Reserve Bank has drawn up a scheme for the bank’s amalgamation with another banking company. With the approval of the central government, the Reserve Bank will endeavour to put the scheme in place well before the expiry of the moratorium and thereby ensure that the depositors are not put to undue hardship or inconvenience for a period of time longer than what is absolutely necessary.