Lakshmi Vilas Bank brought under moratorium till 16 Dec; restricts withdrawals at ₹25,0004 min read . Updated: 17 Nov 2020, 07:05 PM IST
- The financial position of the bank has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth, says RBI
- Borrowers can withdraw above ₹25,000 only for unforeseen expenses including medical treatment, education etc, says govt
The government on Tuesday said Lakshmi Vilas Bank has been brought under moratorium effective 6 pm, 17 November until 16 December and has restricted withdrawals of more than ₹25,000 per borrower during the period of moratorium.
The step was taken by the government, on the advice of the Reserve Bank, in view of the declining financial health of the private sector lender. The central bank said the move was necessitated because its bad loans have been mounting and the losses are expected to continue. The Reserve Bank assured the depositors of the bank that their interest will be fully protected and there is no need to panic.
"The financial position of The Lakshmi Vilas Bank Ltd. (the 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 March 31, 2019," said RBI.
Borrowers can withdraw above ₹25,000 only for unforeseen expenses including medical treatment, education etc, the Ministry of Finance said in a statement.
"The Reserve Bank had been continually engaging with the bank’s management to find ways to augment the capital funds to comply with the capital adequacy norms. The bank management had indicated to the Reserve Bank that it was in talks with certain investors. However, it failed to submit any concrete proposal to Reserve Bank and the 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. As such, the bank- led efforts through market mechanisms have not fructified," RBI added while referring to LVB's agreement with Gurgaon-based non-banking Clix Group for an amalgamation.
"After taking into consideration these developments, the Reserve Bank 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," the banking regulator added.
As per the moratorium order, Lakshmi Vilas Bank will not, without RBI's permission, "make, in the aggregate, payment to a depositor of a sum exceeding twenty-five thousand rupees lying to his credit, in any savings, current or any other deposit account, by whatever name called."
RBI also said that it has superseded the Board of Directors of the lender for a period of 30 days owing to serious deterioration in the financial position of the bank and that this has been done to protect the depositors’ interest.
T.N. Manoharan, former non-executive chairman of Canara Bank, has been appointed as the administrator of the bank.
"Shri T. N. Manoharan, former Non Executive Chairman of Canara Bank has been appointed as the Administrator under Sub-section (2) of Section 36 A C A of the Act," RBI said.
RBI also announced the merger of Lakshmi Vilas Bank with the wholly-owned subsidiary of DBS Bank in India.
At its annual general meeting in late September, the shareholders of the bank had voted out seven board members, including the then MD and CEO S Sundar.
Subsequently, RBI appointed a three-member CoD comprising independent directors Meeta Makhan, Shakti Sinha and Satish Kumar Kalra.
Earlier this month, the South-based lender reported widening of its net loss at ₹397 crore in the second quarter ended September 2020 due to rise in bad loans and provisions.
The bank had posted a net loss of ₹357.18 crore in the same quarter a year ago. Sequentially also, the loss widened against ₹112.28 crore in the June quarter of this fiscal.
Total income during the July-September period of FY 2020-21 fell by 26 per cent to ₹494.58 crore as against ₹665.33 crore a year ago. Interest income fell to ₹420.13 crore from ₹607.33 crore, while income on investment was down at ₹71.21 crore from ₹146.88 crore.
Bank's asset quality deteriorated, as the gross non-performing assets (NPAs) moved up at 24.45 per cent of the gross advances by end of Q2 FY21 as against 21.25 per cent by end of September 2019. Sequentially, it improved from 25.40 per cent by the end of June 2020 quarter.
Gross NPAs were worth ₹4,063.27 crore as of September 2020, as against ₹4,091.05 crore by end of same month a year earlier.