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finance | IST

Lakshmi Vilas Bank brought under moratorium; RBI proposes merger with DBS Bank India

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Borrowers can withdraw above Rs 25,000 only for unforeseen expenses including medical treatment, education etc.

Lakshmi Vilas Bank has been brought under moratorium effective 6 pm, November 17 until December 16. The moratorium has been imposed on the basis of application submitted by RBI under Sec 45 of BR Act. Withdrawals by account holders and creditors has also been capped at Rs 25,000 during the moratorium period.
Account holders can withdraw above Rs 25,000 only for unforeseen expenses including medical treatment, education etc, an official statement said.
The central bank has assured depositors of LVB that their interest will be fully protected and has asked depositors not to panic. RBI will put a Scheme of Amalgamation in place well before the expiry of moratorium and will ensure depositors are not put through undue hardship or are inconvenienced for longer than absolutely necessary.
RBI proposes merger with DBS Bank India
Meanwhile, RBI announced a draft scheme of amalgamation of Lakshmi Vilas Bank with DBS Bank India Ltd (DBIL). DBIL, a wholly owned subsidiary of DBS Bank Ltd, Singapore (DBS), which is a subsidiary of Asia's leading financial services group, DBS Group Holdings Limited, has the advantage of a strong parentage, the apex bank said in a press note.
"DBIL has a healthy balance sheet, with strong capital support. As on June 30, 2020, its total Regulatory Capital was Rs 7,109 crore (against capital of Rs 7,023 crore as on March 31, 2020). As on June 30, 2020, its GNPAs and NNPAs were low at 2.7 percent and 0.5 percent respectively; Capital to Risk Weighted Assets Ratio (CRAR) was comfortable at 15.99 percent (against requirement of 9 percent); and Common Equity Tier-1 (CET-1) capital at 12.84 percent was well above the requirement of 5.5 percent," the RBI statement read.
"The rapidly deteriorating financial position of Lakshmi Vilas Bank relating to liquidity, capital and other critical parameters, and the absence of any credible plan for infusion of capital has necessitated Reserve Bank of India to take immediate action in public interest and particularly in the interest of the depositors," RBI said.
The Reserve Bank has also invited suggestions and objections, if any, from members, depositors and other creditors of transferor bank (LVB) and transferee bank (DBIL), on the draft scheme, which may be sent to the address mentioned in the "Notice". The draft scheme has also been sent to transferor bank and transferee bank for their suggestions and objections. The suggestions and objections will be received by Reserve Bank up to 5 pm on November 20, 2020.
In its draft scheme, RBI has proposed, "Rights and liabilities of the members and creditors of the transferor bank (1) On and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank, shall stand written off. (2) On and from the Appointed date, the transferor bank shall cease to exist by operation of the scheme, and its shares or debentures listed in any stock exchange shall stand delisted without any further action from the transferor bank, transferee bank or order from any authority.”
Moreover, transferor bank will cease to exit by operation of scheme and its shares and debentures listed in any stock exchange shall stand delisted without any further action from transferer/transferee bank or order from any authority, RBI said.
The central bank has superseded Board of Directors of LVB for 30 days owing to serious deterioration in the bank's financial position and has appointed former non-executive chairman of Canara Bank TN Manoharan as Administrator of LVB.
DBS said in statement, "The proposed amalgamation will provide stability and better prospects to Lakshmi Vilas Bank’s depositors, customers and employees following a time of uncertainty. At the same time, the proposed amalgamation will allow DBIL to scale its customer base and network, particularly in South India, which has longstanding and close business ties with Singapore."
CLIX Capital was in the race to merge LVB, however, with the RBI circular it seems like the deal may be off the table.
Note: This article has been updated to incorporate latest developments.