RBI Says Lakshmi Vilas Bank Ltd Placed Under Moratorium

The Lakshmi Vilas Bank Ltd has been placed under Moratorium, the Reserve Bank Of India (RBI) announced yesterday. The financial position of The Lakshmi Vilas Bank Ltd. (the bank) has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth. In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses. Further, the bank is also experiencing continuous withdrawal of deposits and low levels of liquidity. It has also experienced serious governance issues and practices in the recent years which have led to deterioration in its 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.

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.

After taking into consideration these developments, the Reserve Bank has come to the conclusion that 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 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 yesterday.The bank will not be allowed to make payments exceeding Rs 25,000 to any creditors without prior approval from the RBI. The Reserve Bank assured the depositors of the bank that their interest will be fully protected and there is no need to panic.

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