Lakshmi Vilas Bank hit a lower circuit of 20% at Rs 12.4 after the central government on Tuesday (17 November 2020) placed the cash-strapped bank under moratorium for a period of one month.The bank's customers will be able to withdraw only Rs 25,000 from their accounts till 16 December 2020. T N Manoharan, former non-executive chairman of Canara Bank, has been appointed as the administrator of Lakshmi Vilas Bank (LVB).
"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 31 March 2019," the Reserve bank of India (RBI) said in a statement.
RBI had been continually engaging with the bank's management to find ways to augment the capital funds to comply with the capital adequacy norms. However, it failed to submit any concrete proposal to RBI and the bank's efforts to enhance its capital through amalgamation of a non-banking financial company (NBFC) with itself appears to have reached a dead end. In the meantime, the bank was facing regular outflow of liquidity. RBI also assured that the depositors of the bank that their interest will be fully protected and there is no need to panic.
In the absence of a credible revival plan, with a view to protect depositors' interest and in the interest of financial and banking stability, the central government has imposed moratorium for thirty days effective from today, RBI added.
As per the moratorium order, LVB will not, without RBI's permission, "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, by whatever name called."
Further, RBI has invited comments on its draft merger scheme between LVB and with DBS Bank India Ltd. (DBIL). DBIL is a wholly owned subsidiary of Singapore-based DBS Bank, which in turn is a subsidiary of Asia's leading financial services group, DBS Group Holdings. It has been issued a banking license to operate as banking company on 4 October 2018.
DBIL has a healthy balance sheet, with strong capital support. Although the DBIL is well capitalised, it will bring in additional capital of Rs 2500 crore upfront, to support credit growth of the merged entity. Owing to comfortable level of capital, the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with CRAR at 12.51% and CET-1 capital at 9.61%, without taking into account the infusion of additional capital, the central bank said in a statement.
LVB posted a net loss of Rs 397 crore in Q2 September 2020 as compared to a net loss of Rs 357.18 crore in Q2 September 2019. Total income fell 25.7% year on year to Rs 494.58 crore in Q2 September 2020 over Q2 September 2019.
As 30 September 2020, LVB's operations are spread over a network of 563 branches (includes 7 commercial banking branches, 1 satellite branch) and 5 extension counters with PAN India presence, supervised by 7 regional offices. While, the bank continues to have significant presence in the state of Tamil Nadu, it has presence in 16 states and 3 union territories across the length and breadth of the country.
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