New Delhi: The Lakshmi Vilas Bank Limited, on Tuesday, has been placed under moratorium in consideration of an application made by the Reserve Bank of India (RBI), as per an order issued by the Ministry of Finance’s (Department of Financial Services) Banking Division.
The moratorium will be imposed from 6 PM on November 17 till December 16.
As per the MoF order, withdrawals by customers over and above Rs 25,000 are restricted.
According to a report by Bloomberg Quint, Lakshmi Vilas Bank Ltd. will be amalgamated with DBS Bank India Ltd.
The report also stated, as per the RBI, there has been a steady decline in the bank’s financials and it has been incurring losses over the last three years.
In a statement, the RBI explained, “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.”
It may be noted that the bank was placed under the prompt corrective action framework of the banking regulator in September of 2019.
It added that it has been in continuous conversations with the bank’s management regarding its capital position, where the latter indicated that it was in discussions with certain investors. However, they did not submit any concrete plan.
The RBI has, in the meanwhile, drafted a scheme of amalgamation for the merging of Lakshmi Vilas Bank with DBS Bank India.
“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,” read the statement by the RBI.
According to the regulator, DBS Group Holdings Limited, which is the parent company of DBIL’s parent (DBS Bank Ltd., Singapore), has the advantage of a strong parentage.
The statement explains that DBIL has a healthy balance sheet and strong capital support, Bloomber Quint reported.
“Although the DBIL is well capitalised, it will bring in additional capital of ?2500 crore upfront, to support credit growth of the merged entity. Owing to comfortable level of capital, the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with CRAR at 12.51% and CET-1 capital at 9.61%, without taking into account the infusion of additional capital,” the RBI added.
