India on Tuesday placed private-sector lender Lakshmi Vilas Bank Limited under a moratorium till December 16 and has restricted withdrawals of more than Rs 25,000, according to a finance ministry statement.
The moratorium has been imposed on the basis of application submitted by RBI under Sec 45 of BR Act.
During the moratorium, the bank will not be allowed to make any payment worth more than Rs 25,000 to the depositor, without any written permission from the Reserve Bank of India (RBI).
Under certain conditions such as to meet the cost of medical treatment of the depositor, payment of higher education fees and marriages, depositors will be allowed to withdraw more than Rs 25,000 with permission from the Reserve Bank of India (RBI), the Finance Ministry said.
“…hereby stays the commencement or continuance of all actions and proceedings against that banking company during the period of moratorium subject to the condition that such stay in any manner does not prejudice the exercise of the central government of its power….,” the statement read.
“The financial position of The Lakshmi Vilas Bank Ltd. (the bank) has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth. In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses,” the RBI said.
{{/usCountry}}“The financial position of The Lakshmi Vilas Bank Ltd. (the bank) has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth. In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses,” the RBI said.
{{/usCountry}}Further, the RBI added that Lakshmi Vilas Bank is also experiencing continuous withdrawal of deposits and low levels of liquidity. It has also experienced serious governance issues and practices in the recent years which have led to deterioration in its performance. The bank was placed under the Prompt Corrective Action (PCA) framework in September 2019 considering the breach of PCA thresholds as on March 31, 2019.
“After taking into consideration these developments, the Reserve Bank has come to the conclusion that in the absence of a credible revival plan, with a view to protect depositors’ interest and in the interest of financial and banking stability, there is no alternative but to apply to the Central Government for imposing a moratorium under section 45 of the Banking Regulation Act, 1949. Accordingly, after considering the Reserve Bank’s request, the Central Government has imposed moratorium for thirty days effective from today,” the RBI said in a release.
The troubles for Lakshmi Vilas Bank started in 2019 when the RBI rejected a proposal for its merger with shadow lender Indiabulls Housing Finance.