The Union Government has imposed a one-month moratorium on Tamil Nadu-based Lakshmi Vilas Bank with effect from 6 pm on November 17 until December 16 with a cash withdrawal limit of Rs 25,000. Until December 16, account holders of the bank can only withdraw a total of Rs 25,000, even if they have more than one account with LVB.
However, for depositors, there are exceptions where they can withdraw more than Rs 25,000 by taking special permission from the Reserve Bank of India. These include meeting unforeseen expenses such as medical treatment of the account holder or any person dependent on them, for payment towards higher education in or outside India of the account holder or any person dependent on them. Account holders will also be able to withdraw in excess of Rs 25,000 in case they have obligatory expenses in connection with marriages or other ceremonies, and for any other ‘unavoidable emergency’.
However, the maximum a person can withdraw under these circumstances is Rs 5 lakh.
The Finance Ministry also said in the notice that the moratorium will not impact the bank from making payments towards any drafts or pay orders issued by the bank that were due as of November 17. It would also not impact the bank paying the proceeds of bills received for collection on or before November 17.
As per a notice from the Finance Ministry, this would also not affect granting of any loans or advances and making investments in any credit instruments.
The bank will also be allowed to make payments towards existing liabilities and inter-bank borrowings including letters of credit which are due during the moratorium period.
The RBI has also proposed the amalgamation of LVB with Delhi-based DBS Bank India Ltd (DBIL). DBIL is a wholly owned subsidiary of DBS Bank Ltd, Singapore, which in turn is a subsidiary of Asia’s leading financial services group, DBS Group Holdings Limited.
RBI said in its notice that DBIL has a healthy balance sheet, with strong capital support. As on June 30, 2020, its total Regulatory Capital was Rs 7,109 crore, with its gross non-performing assets (GNPAs) at 2.7% as on June 30, 2020.
RBI has said that the bank will bring in additional capital of Rs 2,500 crore upfront to support credit growth of the merged entity.
The central bank has invited suggestions and objections to the draft scheme until 5 pm on November 20, 2020. RBI will take a final view thereafter.
This move by RBI comes even as the bank was in long-drawn talks with Clix Capital for a merger. Talks with the company had been dragging on for several months without any final conclusion of a deal.
In September 2020, in a surprise move, the shareholders of Lakshmi Vilas Bank ousted seven directors, including the bank’s MD and CEO, and auditors at the bank’s Annual General Meeting (AGM), leaving the 94-year-old bank headless.
The bank has been incurring losses for the past 10 quarters and was also put under Prompt Corrective Action (PCA) by RBI for having high non performing assets (NPAs) and a lack of adequate capital. A former employee of the bank also alleged that the bank was publishing misleading information to shareholders and filed a public interest litigation (PIL) in the Madras High Court seeking suspension of the board.