Keypoints:
- The RBI placed cash strapped Laxmi Vilas Bank under moratorium for a period of one month.
- It restricted withdrawals at Rs. 25,000 for depositors, owing to serious deterioration in the lenders financial position.
The Reserve Bank of India (RBI) on Tuesday proposed a draft scheme of amalgamation that entails the Indian unit of Singapore’s DBS Bank taking over the capital-starved Lakshmi Vilas Bank (LVB), within hours of the Centre imposing a one-month moratorium on the Karur-based lender that temporarily capped withdrawals at ₹25,000.
On November 17, the moratorium began with a close of business, said the government in a statement.
In order to protect the depositors interest, the RBI also superseded the private lenders board following a “serious deterioration” in the banks financial position and appointed T N Manoharan, a former Non Executive Chairman of Canara Bank, as administrator.
The RBI, after observing the DBS Bank India Ltd. (DBIL) was “well capitalized”, it said it will bring in additional capital of Rs. 2,500 crore upfront, to support the credit growth of merged entity. Owing to comfortable level of capital, the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with CRAR at 12.51% and CET-1 capital at 9.61%, without taking into account the infusion of additional capital”.
The Central Bank said, “The Reserve Bank assures the depositors of the bank that their interest will be fully protected and there is no need to panic.With the approval of the Central Government, the Reserve Bank will endeavour to put the Scheme in place well before the expiry of the moratorium and thereby ensure that the depositors are not put to undue hardship or inconvenience for a period of time longer than what is absolutely necessary.”
By November 20, the RBI has invited suggestions and objections from members, depositors and other creditors of LVB and DBIL.
LVB had been trying for some time to clinch a deal with Clix Group for a merger to bail it out and had separately been considering a rights issue as well.
Shakti Sinha, a member of superseded board of directors at LVB said that, “We have enough liquidity.Your money is safe.Of course, there are some restrictions for withdrawals. We hope that moratorium will end soon”.
