The central government placed Lakshmi Vilas Bank under a one-month moratorium till December 16, superseded its board and capped withdrawals at Rs.25,000 per depositor.
If the RBI issues special orders, the bank could exceed the withdrawal limit for medical treatments, education and wedding expenses, as well as unavoidable emergencies.
The Union finance ministry took the action based on a request from the RBI in view of the declining financial health of the Tamil Nadu-based private sector lender. In a statement, the RBI said 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 was no alternative but to ask the central government to impose a moratorium under Section 45 of the Banking Regulation Act, 1949.
TN Manoharan, former non-executive chairman of Canara Bank, has been appointed the bank’s administrator.
The RBI has also placed in the public domain a draft scheme for LVB’s amalgamation with DBS Bank India, the Indian subsidiary of the Singapore-based DBS Bank.
The moratorium comes 14 months after the RBI placed it under a prompt corrective action framework following a sharp rise in non-performing assets, insufficient capital to manage risks and negative returns on assets for two consecutive years. The PCA is meant to improve the performance of weak banks without affecting their daily operations. The bank had at the time maintained that it would comply with the directives of the RBI and update it on a monthly basis. It also claimed in September last year that the PCA would not adversely affect its routine operations.
In September this year, shareholders voted out seven board members, including the managing director and CEO S Sundar, at the annual general meeting. Subsequently, the RBI appointed a three-member committee of directors comprising independent directors Meeta Makhan, Shakti Sinha and Satish Kumar Kalra.
An official at the bank’s Mumbai office said an official response will be made available on Wednesday. The LVB has around a dozen branches in the Mumbai Metropolitan Region, which includes two branches in Thane and one in Navi Mumbai. Started by a group of businessmen from Karur in Tamil Nadu in 1926, the bank has expanded with 566 branches and 918 ATMs in 19 states and a Union Territory.
On March 5 this year, RBI imposed a moratorium on another private lender, the capital- starved Yes Bank, and capped withdrawals at Rs.50,000 per account. The following day, Finance Minister Nirmala Sitharaman laid out a restructuring plan to save the bank, allowing the SBI to pick up a 49 per cent stake in it. The moratorium was withdrawn on March 18, and normal banking activities were restored the next day.