Lakshmi Vilas Bank is in default, RBI proposes merger with DBS Bank India

The central government on Tuesday placed Lakshmi Vilas Bank less than a month moratorium until December 16, he replaced its board and limited withdrawals to 25,000 rupees per depositor.

If he RBI Issues special requests, the bank could exceed the withdrawal limit for medical treatment, education and wedding expenses, as well as unavoidable emergencies.

The Union Finance Ministry took the action based on a request from the RBI in light of the deteriorating financial health of the Tamil Nadu-based private sector lender. In a statement, the RBI said that in the absence of a credible reactivation plan, with a view to protecting the interests of depositors and in the interests of financial and banking stability, there was no alternative but to ask the central government to impose a moratorium under Section 45 of the Banking Regulation Act of 1949.

TN Manoharan, former non-executive chairman of Canara Bank, has been appointed administrator of the bank.

The RBI has also put into the public domain a draft scheme for the merger of LVB with DBS Bank India, the Indian subsidiary of Singapore-based DBS Bank.

The moratorium comes 14 months after the RBI placed it under an immediate corrective action (PCA) framework following a sharp increase in non-performing assets, insufficient capital to manage risks, and negative returns on assets for two consecutive years. The PCA is intended to improve the performance of weak banks without affecting their day-to-day operations. At the time, the bank had maintained that it would comply with RBI directives and update them monthly. It also claimed in September last year that the PCA would not adversely affect its routine operations.

In September this year, shareholders rejected seven board members, including managing director and CEO S Sundar, at the annual general meeting. Subsequently, the RBI appointed a three-member board of directors consisting of independent directors Meeta Makhan, Shakti Sinha and Satish Kumar Kalra.

An official at the bank’s Mumbai office said an official response will be available on Wednesday. LVB has around a dozen branches in the Mumbai Metropolitan Region, which includes two branches in Thane and one in Navi Mumbai. Started by a group of Karur entrepreneurs in Tamil Nadu in 1926, the bank has expanded with 566 branches and 918 ATMs in 19 states and one Union territory.

On March 5 of this year, RBI imposed a moratorium on another private lender, Yes Bank, which lacked capital, and limited withdrawals to Rs 50,000 per account. The next day, Finance Minister Nirmala Sitharaman presented a restructuring plan to save the bank, allowing the SBI to take a 49 percent stake in it. The moratorium was lifted on March 18 and normal banking activities were restored the next day.