Lakshmi Vilas Bank placed under moratorium for a month, withdrawals capped at Rs 25,000 till December 16

The Reserve Bank of India (RBI) on Tuesday placed Tamil Nadu-headquartered troubled private lender Lakshmi Vilas Bank (LVB) under a moratorium for a span of one month. The apex bank has also superseded the Board of Directors of the LVB.

During the period of moratorium, which would last for a period of one month effective Tuesday, the depositors would be able to withdraw a maximum of Rs 25,000 only.

However, in special circumstances, depositors can withdraw more than Rs 25,000 only after permission by the RBI. The circumstances in which depositors can withdraw more than Rs 25,000 include cash needed for medical treatment cost of the depositor or his family, or higher education cost.

"After considering the Reserve Bank’s request, the Central Government has imposed moratorium for thirty days effective from today," the Reserve Bank said in a circular.

The central bank, superseding the board of LVB, has appointed T N Manoharan, former Non-Executive Chairman of Canara Bank as the administrator of the troubled private entity.

"In exercise of the powers conferred under Sub-section (1) of Section 36 A C A of the Banking Regulation Act 1949, the Reserve Bank has, in consultation with Central Government, superseded the Board of Directors of The Lakshmi Vilas Bank Ltd. for a period of 30 days owing to a serious deterioration in the financial position of the bank," the central bank said.

The failure of the LVB again raises questions on the stability of the financial system in India as it is the fourth major financial institution after PMC Bank, DHFL, and YES Bank, which has been placed in a moratorium in the past 13 months. 

The gross non-performing assets (NPAs) ratio as a percentage of gross advances remained at an alarming level of 24.45% in Q2 FY21, higher than 21.25% in Q2 FY20. The percentage of net NPA stood at 7.01% against 10.47% last year.

LVB, which has been under RBI’s prompt corrective action (PCA) since September 2019, had said that it has received an indicative non-binding offer from Clix Group. PCA entails curbs on high-risk lending, setting aside more money on provisions and restrictions on management salary.

Meanwhile, the Reserve Bank of India has notified the amalgamation plan of merging the LVB with DBS Bank India, a wholly-owned subsidiary of DBS Bank Singapore.