In an official statement, the RBI said: “In the absence of a credible reactivation plan, with a view to protecting the interests of depositors and in the interest of financial and banking stability, there is no alternative but to request the Central Government to impose a moratorium under section 45 of the Banking Regulation Act of 1949. Consequently, after considering the request of the Reserve Bank, the central government has imposed a moratorium for thirty days from today. ”
The banking regulator intervened after LVB shareholders removed a CEO and RBI-approved director in September. He had approved the constitution of a committee of three independent directors: Meeta Makhan, Shakti Sinha and Satish Kumar to manage the day-to-day affairs of the bank.
“The financial position of Lakshmi Vilas Bank Ltd has seen a steady decline and the bank has incurred continuous losses for the past three years, which has eroded its net worth. In the absence of a viable strategic plan, declining progress and the increase in unprofitable assets), losses are expected to continue, “the RBI said.
RBI has also drawn up a merger scheme for LVB with DBS Bank of India and aims to complete the merger process before the end of the moratorium period.
According to the moratorium order, LVB, without RBI’s permission, will not “collectively make payment to a depositor of a sum greater than Rs 25,000 lying to his credit, in any savings, checking or any other account. deposit, by whatever name is called. ”
However, the central bank assures bank depositors that their interests will be fully protected and there is no need to panic.
TN Manoharan, former non-executive chairman of Canara Bank, has been appointed administrator of the bank.
LVB had started merger talks with Clix after RBI rejected an earlier proposal to merge with Indiabulls Housing Finance. The bank was in dire need of an investor as it faced lending restrictions for over a year from the RBI under its swift corrective action after executives were investigated for fraud regarding Religare Finvest’s fixed deposits.
(With contributions from the agency)
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