The central government has decided to place Laxmi Vilas Bank under moratorium till December 16, 2020. The ailing Chennai-based private sector lender will be under the supervision of the Reserve Bank of India (RBI). The move based on an application made by the RBI was announced through an order issued by the Ministry of Finance.
The RBI has also restricted withdrawals by depositors at Rs 25,000 from savings and current accounts, and expenditure on any item at Rs 50,000 per month.
The Reserve Bank of India has superseded its board of directors and announced a draft scheme for the amalgamation of the bank with DBS Bank India, a subsidiary of DBS of Singapore, owing to serious deterioration in the financial position of the bank. DBS Bank will bring in additional capital of Rs 2,500 crore upfront, to support the credit growth of the merged entity. TN Manoharan, former non-executive chairman of Canara Bank has been appointed as the administrator.
No Need to Panic: RBI
The RBI has assured the depositors of the bank that there is no need to panic and their interest will be fully protected. In a statement released on Tuesday RBI said “with the approval of the Central Government, the Reserve Bank will endeavor 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.”
There are four branches of Laxmi Vilas Bank in Jharkhand of which two are in Ranchi and one in Jamshedpur. There are about 47,590 account holders, of which around 22,000 are in the two branches of Ranchi.
The central bank said the financial position of Chennai-based Lakshmi Vilas Bank, which has a network of 563 branches and deposits of Rs 20,973 crore, has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net worth. The bank was also placed under the prompt corrective action (PCA) framework in September 2019.
The Laxmi Vilas Bank posted a net loss of Rs 397 crore in the September quarter of FY21, as against a loss of Rs 112 crore in the June quarter. Its gross non-performing assets (NPAs) stood at 25.40% of the gross advances as of June 30, 2020, from 17.30% a year ago. In absolute terms, gross NPAs rose to Rs 4,142.37 crore from Rs 3,556.57 crore. The total business of the bank was Rs 37,595 crore at the end of September 2020, as against Rs 47,115 crore at the end of September last year.
