The Reserve Bank of India said on Tuesday that Lakshmi Vilas Bank has been suspended as of 6 p.m., November 17 to December 16, and has restricted withdrawals of more than ₹25,000 during the moratorium period.
The central bank said the move was necessary because its bad loans have been on the rise and losses are expected to continue. The Reserve Bank assured the bank’s depositors that their interests will be fully protected and there is no need to panic.
“The financial position of The Lakshmi Vilas Bank Ltd. (the bank) has seen a steady decline and the bank has incurred ongoing losses over the past three years, eroding its net worth. In the absence of a viable strategic plan, progress in Doubtful assets (NPA) decline and rise, losses are expected to continue. The bank has not been able to raise adequate capital to address issues related to its negative equity and ongoing losses. Additionally, the bank is also experiencing ongoing withdrawals. deposits and low levels of liquidity. It has also experienced serious governance problems and practices in recent years that have led to a deterioration in its performance. The bank was placed under the Rapid Corrective Action (PCA) framework in September 2019 considering failure to meet PCA thresholds as of March 31, 2019, “RBI said.
Borrowers can withdraw up ₹25,000 just for unforeseen expenses including medical treatment, education, etc., the Finance Ministry said in a statement.
“The Reserve Bank had been continuously collaborating with the bank’s management to find ways to increase capital funds to meet capital adequacy standards. The bank’s management had indicated to the Reserve Bank that it was in discussions. However, the failure to present any concrete proposals to the Reserve Bank and the bank’s efforts to improve its capital by merging a Non-Banking Finance Company (NBFC) with itself appear to have reached a dead end. As such, efforts led by banks through market mechanisms have not borne fruit, “RBI added.
“After taking these developments into consideration, the Reserve Bank has concluded that, in the absence of a credible recovery plan, with a view to protecting the interests of depositors and in the interests of financial and banking stability, There is no other alternative than to request the central government to impose a moratorium under section 45 of the Banking Regulation Law of 1949, “the banking regulator added.
RBI also said that it has replaced the Lender’s Board of Directors for a period of 30 days due to the serious deterioration of the bank’s financial situation and that this has been done to protect the interests of depositors.
“Shri TN Manoharan, former non-executive chairman of Canara Bank has been appointed administrator under subsection (2) of section 36 ACA of the act”, RBI sa
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