The Centre on Tuesday capped withdrawal at Rs25,000 from Tamil Nadu-based private sector lender Lakshmi Vilas Bank. It also put the bank under a moratorium for a month.
However, depositors can withdraw more than Rs25,000 to meet the cost of medical treatment, payment of higher education, and marriage expenses, provided it is approved by the Reserve Bank of India.
“…hereby stays the commencement or continuance of all actions and proceedings against that banking company during the period of moratorium subject to the condition that such stay in any manner does not prejudice the exercise of the central government of its power….,” a statement from the finance ministry said.
The Reserve Bank of India (RBI) in September appointed a three-member committee chaired by Meeta Makhan to run the cash-strapped private sector lender.
The move came after its shareholders voted out seven directors.
“The financial position of The Lakshmi Vilas Bank Ltd 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,” the RBI said in a statement.
How the trouble for Lakshmi Vilas Bank started
Lakshmi Vilas Bank has been facing a deterioration in asset quality and is on the search for a new buyer for the last one year. It was reportedly in talks with Clix Capital for capital infusion and a possible merger.
The troubles for the bank began in 2019 when the RBI rejected a proposal for its merger with shadow lender Indiabulls Housing Finance.
Last month, Lakshmi Vilas Bank’s founder KR Pradeep told the media that there was no liquidity problem in the bank. He claimed that it had a 260% liquidity coverage ratio versus the 80% that is required.
Lakshmi Vilas Bank shares ended 1% lower at Rs15.50.
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