Even as it put the troubled Lakshmi Vilas Bank (LVB) under a one-month moratorium, the Reserve Bank of India (RBI) on Tuesday initiated a merger of the Chennai-based lender with DBS Bank India (DBIL). The RBI said DBS would bring in Rs 2,500 crore of capital to support the bank’s business. Cash withdrawals from LVB have been capped at Rs 25,000 per borrower until December 16 when the moratorium ends.
RBI has in consultation with the Centre, under Sub-section (1) of Section 36 A C A of the Banking Regulation Act 1949, superceded the board of directors of LVB for 30 days owing to “serious deterioration in the financial position of the bank” and to protect interests of the depositors.
TN Manoharan, former non-executive chairman, Canara Bank, has been appointed as the administrator under Section (2) of Section 36 A C A of the Act.
Given its comfortable capital base, the combined balance sheet post the merger would remain robust with CRAR at 12.51% and CET-1 capital at 9.61%, without taking into account the infusion of additional capital, the RBI said. LVB had been exploring a merger with Clix Capital.
The bank’s financial position has worsened steadily with the lender incurring losses over the last three years, eroding its net-worth. It was being overseen by a three-member committee appointed by RBI. The bank slipped into a crisis in late September after shareholders blocked the appointment or re-appointment of seven directors to the board, including that of S Sundar, MD & CEO. They also voted against the re-appointment of statutory auditors P Chandrasekar LLP, chartered accountants and branch auditors. LVB, which has been placed under the RBI’s prompt corrective action since 2019, had narrowed its losses to Rs 112.28 crore for Q1FY21 from a net loss of Rs 237.25 crore in Q1FY20.
In the absence of any viable strategic plan, declining advances and mounting non-performing assets, the losses are expected to continue, the RBI said. Further, the bank has been seeing a 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 RBI said.
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