Lakshmi Vilas Bank placed under moratorium by RBI; withdrawals for bank account holders restricted at Rs 25,000

In a major move in the banking sector, the government has ordered private sector lender Lakshmi Vilas Bank to be placed under a 1-month moratorium. Not just that, bank account withdrawals have been capped at Rs 25,000 per depositor and its board superseded. As far as bank account holders are concerned, Lakshmi Vilas Bank cannot "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," without RBI's permission. T N Manoharan, former non-executive chairman of Canara Bank, has been appointed as the administrator of the bank.

The order was taken by Centre on Reserve Bank of India request that came after Lakshmi Vilas Bank financial health declined.
RBI, in a statement, said it was taking this step to protect depositors' interest as well as in the interest of financial and banking stability especially in the absence of a credible revival plan. RBI said there was no alternative but to apply to the central government for imposing a moratorium under Section 45 of the Banking Regulation Act, 1949.

RBI statement said, "Accordingly, after considering the Reserve Bank's request, the Central Government has imposed moratorium for thirty days effective from today".

Not just moratorium, the RBI has also placed in public domain a draft scheme of amalgamation of Lakshmi Vilas Bank (LVB) with DBS Bank.

RBI proposed a draft scheme of amalgamation of the Lakshmi Vilas Bank with DBS Bank India, a wholly-owned subsidiary of DBS Bank Ltd, Singapore, which is itself a subsidiary of Asia's leading financial services group, DBS Group Holdings Ltd.

RBI said that DBS Bank India has a healthy balance sheet, with strong capital support. As on June 30, its total regulatory capital was Rs 7,109 crore (against capital of Rs 7,023 crore as on March 31). Its gross non-performing assets (GNPA) and net NPA (NNPA) were low at 2.7 per cent and 0.5 per cent, respectively.

Although the DBS Bank India is well capitalised, it will bring in additional capital of Rs 2,500 crore upfront, to support credit growth of the merged entity.

Owing to comfortable level of capital, the combined balance sheet of DBS Bank India would remain healthy after the proposed amalgamation, with CRAR at 12.51 per cent and CET-1 capital at 9.61 per cent, without taking into account the infusion of additional capital.