Lakshmi Vilas Bank put under moratorium; RBI makes move due to no credible revival plan

The Reserve Bank of India today put the Lakshmi Vilas Bank under moratorium. RBI said that it took the decision as there was no credible revival plan, with a view to protecting depositors’ interest and in the interest of financial and banking stability. The Reserve bank underlined that the financial position of the Lakshmi Vilas Bank has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth. Further, in the absence of any viable strategic plan, declining advances, and mounting NPAs, the losses are expected to continue.RBI also stated that the bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses while experiencing the continuous withdrawal of deposits and low levels of liquidity.

The central bank highlighted that the Lakshmi Vilas Bank has experienced serious governance issues and practices in recent years which have led to the deterioration in its performance. It is to be noted that the bank was placed under the Prompt Corrective Action (PCA) framework in September 2019.

What happens to bank customers?

While the Central Government has imposed a moratorium on Lakshmi Vilas Bank for thirty days effective from today, the Reserve Bank has assured the depositors of the bank that their interest will be fully protected and there is no need to panic. RBI has drawn up a scheme for the bank’s amalgamation with another banking company and with the approval of the Central Government, the Reserve Bank will soon put the scheme in place before the expiry of the moratorium and thereby ensure that the depositors are not put to undue hardship or inconvenience.

Meanwhile, in a separate notification, the RBI said that the draft scheme of amalgamation of The Lakshmi Vilas Bank is with the DBS Bank India Ltd. DBIL is a banking company incorporated in India under Companies Act, 2013, and having its Registered Office at New Delhi.