• Kushal Kumar Jha

RBI imposes one-month moratorium on Lakshmi Vilas Bank | Withdrawals capped at ₹25,000

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The Reserve Bank of India (RBI) on Tuesday has placed the Lakshmi Vilas Bank under a one-month moratorium period. The moratorium period takes effect from November 17 to December 16, 2020. During these 30 days, cash withdrawal of up to only ₹25,000 will be allowed. Withdrawal of any amount more than ₹25,000 will only be allowed in case of medical emergencies or any other unavoidable emergencies.  The RBI in the circular said that the financial situation of The Lakshmi Vilas Bank has undergone a steady decline over the last three years and the bank has incurred continuous losses, eroding its overall net-worth. In the absence of any viable strategic plan, declining advances, and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has also been unable to raise adequate capital to address issues around its negative net-worth and increasing losses. Further, the bank is also experiencing a continuous withdrawal of deposits and low levels of liquidity. It has also experienced serious governance issues and practices in recent years which have led to the deterioration in its banking 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. The Reserve Bank had been continually engaging with the bank’s management to find ways to augment the capital funds to comply with the capital adequacy norms. The bank management had indicated to the Reserve Bank that it was in talks with certain investors. However, it failed to submit any concrete proposal to Reserve Bank and the bank’s efforts to enhance its capital through an amalgamation of a Non-Banking Financial Company (NBFC) with itself appears to have reached a dead end," said RBI. "As such, the bank-led efforts through market mechanisms have not fructified. As bank-led and market-led revival efforts are a preferred option over a regulatory resolution, the Reserve Bank had made all possible efforts to facilitate such a process and gave enough opportunities to the bank’s management to draw up a credible revival plan, or an amalgamation scheme, which did not materialise. In the meantime, the bank was facing regular outflow of liquidity," the reserve bank added. The circular also stated, "After taking into consideration these developments, the Reserve Bank has concluded that in the absence of a credible revival plan, intending 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." However, RBI has assured the depositors of the bank that their interest will be fully protected and that there is no need for panic. In terms of the provisions of the Banking Regulation Act, the Reserve Bank has drawn up a scheme for the bank’s amalgamation with another banking company. With the approval of the Central Government, RBI aims to put the Scheme in place well before the expiry of the moratorium.

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