RBI puts debt-ridden Lakshmi Vilas Bank under moratorium

Mumbai: The government on Tuesday imposed a 30-day moratorium on Lakshmi Vilas Bank, restricting cash withdrawals at Rs 25,000 per depositor, and simultaneously announced a scheme to merge the cash-strapped lender with DBS India.

The step was taken on the advice of the Reserve Bank in view of the private sector bank's deteriorating financial health.

The Reserve Bank also superseded the board of Lakshmi Vilas Bank (LVB) and appointed T N Manoharan, former non-executive chairman of Canara Bank, as its administrator for 30 days.

The RBI placed in the public domain a draft scheme of amalgamation of LVB with DBS Bank India Ltd (DBIL).

DBS Bank India, in a statement, said the proposed amalgamation will provide stability and better prospects to LVB's depositors, customers and employees.

"To support the amalgamation, DBS will inject Rs 2,500 crore (SGD 463 million) into DBIL if the scheme is approved. This will be fully funded from DBS' existing resources," it said.

LVB is the second private sector bank after Yes Bank which has run into rough weather during this year.

In March, capital-starved Yes Bank was placed under a moratorium. The government rescued it by asking state-run SBI to infuse Rs 7,250 crore and take 45 per cent stake in the bank.

The Department of Financial Services, in a gazette notification, said LVB "shall not, without the permission in writing of the Reserve Bank of India, make, in the aggregate, payment to a depositor of a sum exceeding Rs 25,000 lying to his credit, in any savings, current or any other deposit account" during the moratorium period up to December 16, 2020.

However, the bank can make payment in excess of Rs 25,000 to meet unforeseen expenses in connection with medical treatment of a depositor or any dependent person, or towards the cost of higher education of the person/dependants.

Besides, RBI can permit the bank to disburse more than Rs 25,000 for payment towards obligatory expenses in connection with marriage or other ceremonies or any other unavoidable emergency.

The amount disbursed during the emergency situation shall not exceed the sum of Rs 5 lakh or the actual balance lying to the credit of the account of such depositor, whichever is less, the notification said.

Also, if a depositor maintains more than one account in the same capacity and in the same right, the total amount payable from all the accounts together cannot exceed Rs 25,000.

RBI said the financial position of LVB has undergone a steady decline, with the bank incurring continuous losses over the last three years, eroding its net-worth.

In the absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue, it said, adding the bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses.

Further, it is experiencing continuous withdrawal of deposits and low levels of liquidity. It has also experienced serious governance issues in recent times.

The bank was placed under the Prompt Corrective Action (PCA) framework in September 2019 amid soaring NPAs.

Shareholders of LVB had in September ousted seven directors, including its MD and CEO, and auditors at the bank's AGM.

The truncated board sought to assuage investors stating that the bank's liquidity situation was comfortable and assured the depositors that their monies were safe.

The bank's troubles started after it shifted its focus to lend to large businesses from SMEs. Its loans of nearly Rs 720 crore to the investment arms of Malvinder Singh and Shivinder Singh, former promoters of pharma major Ranbaxy and Fortis Healthcare, against fixed deposits (FDs) of Rs 794 crore made with the bank in late 2016 and early 2017, also turned the bank turtle.

LVB had sought the RBI's nod to amalgamate itself with Indiabulls Housing Finance and Indiabulls Commercial Credit in May 2019 to meet its capital requirements.

However, the deal could not get regulatory approval because of the RBI's aversion to let realty-focused entities into commercial banking.

On June 15, 2020, the bank had signed a preliminary, non-binding letter of intent with Clix Group for a possible merger.

LVB posted a net loss of Rs 836.04 crore in the year to March 2020. The bank had recorded a net loss of Rs 396.99 crore during the second quarter ended September of this fiscal, up from Rs 357.17 crore in the same quarter a year ago.

Net NPAs or bad loans stood at 7.01 per cent of the net loans at end of September 2020, as against 10.24 per cent as on March 31, 2020 and 10.47 per cent by September 2019.

Started by a group of seven progressive businessmen of Karur under the leadership of V S N Ramalinga Chettiar in 1926, the bank had expanded with 566 branches and 918 ATMs in 19 states and 1 union territory.

DBIL is a wholly-owned subsidiary of DBS Bank Ltd, Singapore (DBS), which in turn is a subsidiary of Asia's leading financial services group DBS Group Holdings Limited and has the advantage of a strong parentage.

"DBIL has a healthy balance sheet, with strong capital support. As on June 30, 2020, its total Regulatory Capital was Rs 7,109 crore (against Capital of Rs 7,023 crore as on March 31, 2020)," RBI said in a separate statement.

"The RBI invites suggestions and objections, if any, from members, depositors and other creditors of transferor bank (LVB) and transferee bank (DBIL), on the draft scheme, which may be sent to the address mentioned in the Notice," it added.

The suggestions and objections will be received by the central bank till November 20, 2020. The RBI will take a final view thereafter, it said.