RBI places Lakshmi Vilas Bank under moratorium

Tribune News Service

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New Delhi, November 17

The RBI on Tuesday put a 30-day moratorium on Lakshmi Vilas Bank (LVB), capping withdrawals during this period at Rs 25,000, but offered a ray of hope to depositors by announcing a draft merger plan with DBS Bank India Ltd. (DBIL), a wholly owned subsidiary of DBS Bank Singapore.

The RBI said it was compelled to take action after LVB’s financial position steadily deteriorated over the past three years, completely eroding its net worth. Moratorium was the only option as there was no viable strategic plan.

Therefore, the RBI, in consultation with the Centre, superseded the Board of Directors and appointed TN Manoharan, a former Canara Bank executive, as the Administrator. After PMC Bank and Yes Bank, this is the third private sector bank to land in trouble recently.

The RBI also placed in public domain a draft scheme of amalgamation with DBIL which it argued “has the advantage of a strong parentage”. The RBI expects DBIL to bring in additional capital of Rs 2,500 crore upfront to support credit growth of the merged entity. It expects the combined balance sheet to remain healthy after the proposed amalgamation without taking into account the infusion of additional capital.