RBI has announced a Moratorium of 30 days in the case of Laxmi Vilas Bank and has issued Operational Guidelines including withdrawal limit of Rs. 25000. Also RBI has appointed sh. TN Manoharan as Administrator and placed a draft Scheme of Merger of Laxmi Vilas Bank with DBS Bank for suggestions/ objections by 20th Nov. 2020.
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.
The Reserve Bank had been continually engaging with the bank’s management to find ways to augment the capital funds to comply with the capital adequacy norms. The bank management had indicated to the Reserve Bank that it was in talks with certain investors. However, it failed to submit any concrete proposal to Reserve Bank 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. As such, the bank- led efforts through market mechanisms have not fructified. 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 today.
The Reserve Bank assures the depositors of the bank that their interest will be fully protected and there is no need to panic. In terms of the provisions of the Banking Regulation Act, the Reserve Bank has drawn up a scheme for the bank’s amalgamation with another banking company. With the approval of the Central Government, the Reserve Bank will endeavour to put the Scheme in place well before the expiry of the moratorium and thereby ensure that the depositors are not put to undue hardship or inconvenience for a period of time longer than what is absolutely necessary.
The Reserve Bank has also issued certain directions to the bank under section 35 A of the Act ibid.
S.O. 4127(E).—In exercise of the powers conferred by sub-section (2) of section 45 of the Banking Regulation Act, 1949 (10 of 1949), the Central Government, after considering an application made by the Reserve Bank of India under sub-section (1) of that section, hereby makes this Order of moratorium in respect of the Lakshmi Vilas Bank Limited, Karur, Tamil Nadufor the period with effect from 18:00 hrs on the 17th day of November, 2020 up to and inclusive of 16th day of December, 2020 and 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 shall not in any manner prejudice the exercise by the Central Government of its powers under clause (b) of sub-section (4) of section 35 of the said Act or the exercise by the Reserve Bank of India of its powers under section 38 of the said Act. (….contd…. please refer above attachment)
Whereas the Reserve Bank of India is satisfied that in order to protect the interest of the depositors and in public interest, it is necessary to issue certain directions to The Lakshmi Vilas Bank Ltd., having its registered office at Karur, Tamilnadu (hereinafter referred to as ‘the banking company’), the Reserve Bank of India, in exercise of the powers vested under sub-section (1) of Section 35A of the Banking Regulation Act, 1949 hereby directs that The Lakshmi Vilas Bank Ltd.,
as from 1800 hours on November 17, 2020, shall not make any investment, incur any liability or agree to disburse any payment, whether in discharge of its liabilities and obligations or otherwise, or enter into any compromise or agreement, or shall transfer or otherwise dispose of any of its properties or assets, except to the extent and in the manner provided hereunder: (….contd… please refer above attachment)
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 serious deterioration in the financial position of the bank. This has been done to protect the depositors’ interest. Shri T. N. Manoharan, former Non Executive Chairman of Canara Bank has been appointed as the Administrator under Sub-section (2) of Section 36 A C A of the Act.
….. the Reserve Bank of India has come to a considered view that any effort to revive the banking company will be in vain with the present Board of Directors in place, steering its affairs. Therefore, to protect the interest of the depositors and to secure proper management of the banking company, Reserve Bank of India, in exercise of the powers conferred by Section 36ACA of the Banking Regulation Act, 1949 and in consultation with the Central Government, hereby supersedes the Board of Directors of the banking company for a period of 30 days. (….contd…. please refer above attachment)
Consequent upon the supersession of the Board of Directors of The Lakshmi Vilas Bank Ltd., having its registered office at Karur, Tamilnadu, in exercise of the powers conferred by section 36ACA of the Banking Regulation Act, 1949, the Reserve Bank of India hereby appoints Shri T N Manoharan, former Non Executive Chairman of Canara Bank, presently residing at Chennai as Administrator for a period not exceeding thirty days or until further orders, with effect from November 17, 2020 The Administrator shall have all powers of the Board of Directors of the banking company and shall discharge the duties and functions of the Board of Directors as per provisions of the Banking Regulation Act, 1949.
he Reserve Bank of India has today placed in public domain a draft scheme of amalgamation of The Lakshmi Vilas Bank Ltd. (LVB) with DBS Bank India Ltd. (DBIL), a banking company incorporated in India under Companies Act, 2013, and having its Registered Office at New Delhi.
DBIL is a wholly owned subsidiary of DBS Bank Ltd, Singapore (“DBS”), which in turn is a subsidiary of Asia’s leading financial services group, DBS Group Holdings Limited and has the advantage of a strong parentage. It has been issued a banking license to operate as banking company under Section 22 (1) of the B R Act, on October 4, 2018. DBIL has a healthy balance sheet, with strong capital support. As on June 30, 2020, its total Regulatory Capital was ₹7,109 crore (against Capital of ₹7,023 crore as on March 31, 2020). As on June 30, 2020, its GNPAs and NNPAs were low at 2.7% and 0.5% respectively; Capital to Risk Weighted Assets Ratio (CRAR) was comfortable at 15.99% (against requirement of 9%); and Common Equity Tier-1 (CET-1) capital at 12.84% was well above the requirement of 5.5%. Although the DBIL is well capitalised, it will bring in additional capital of ₹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 Reserve Bank invites suggestions and objections, if any, from members, depositors and other creditors of transferor bank (LVB) and transferee bank (DBIL), on the draft scheme, which may be sent to the address mentioned in the “Notice”. The draft scheme has also been sent to transferor bank and transferee bank for their suggestions and objections. The suggestions and objections will be received by Reserve Bank up to 5.00 PM on November 20, 2020. The Reserve Bank will take a final view thereafter.
It may be recalled that the The Lakshmi Vilas Bank Ltd. has been placed under an order of moratorium on November 17, 2020 which will be effective upto December 16, 2020.
Whereas The Lakshmi Vilas Bank Ltd. is a banking company registered under the Companies Act, 1956 and carrying on the business of banking in India;
And whereas the rapidly deteriorating financial position of The Lakshmi Vilas Bank Ltd. relating to liquidity, capital and other critical parameters, and the absence of any credible plan for infusion of capital has necessitated Reserve Bank of India to take immediate action in public interest and particularly in the interest of the depositors and accordingly, The Lakshmi Vilas Bank Ltd. was placed under moratorium by an order of the Central Government vide notification number S.O.4127(E), dated the November 17, 2020 in exercise of the powers conferred by sub-section (2) of section 45 of the Banking Regulation Act, 1949 (10 of 1949);
And whereas, during the period of moratorium or at any other time the Reserve Bank of India may, if so considered necessary in public interest or in the interest of the depositors and also to secure the management of the banking company, prepare a scheme of reconstruction or amalgamation of the concerned banking company.
And whereas, the Reserve Bank of India has come to a conclusion that the present position of The Lakshmi Vilas Bank Ltd. calls for the preparation of a scheme of amalgamation;
Therefore, in exercise of the powers conferred by sub-section (4) of section 45 of the Banking Regulation Act, 1949, the Reserve Bank of India, hereby makes the following scheme: (…contd… please refer above attachment)
It is hereby notified that on the application of the Reserve Bank of India under Sub-section (1) of Section 45 of the Banking Regulation Act, 1949, the Government of India has made an Order of Moratorium in respect of The Lakshmi Vilas Bank Ltd. under Sub-section (2) of the said Section for the period from 17th day of November 2020 and up to and inclusive of the 16th day of December 2020. In order to effect amalgamation of The Lakshmi Vilas Bank Ltd. with DBS Bank India Ltd., the Reserve Bank of India, in exercise of the powers conferred on it by Sub-section (4) of the said Section, has prepared a draft scheme of amalgamation. In terms of Section 45(6)(b) of the Act ibid, the draft scheme is placed on RBI website for suggestions and objections, if any from members, depositors or creditors of The Lakshmi Vilas Bank Ltd. or DBS Bank India Ltd. The suggestions and objections with regard to the draft scheme, may be sent to the Chief General Manager, Department of Regulation, Reserve Bank of India, Central Office, 13th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001, or email not later than 5.00 PM on Friday, the November 20, 2020 for consideration under clause (b) of Sub-Section (6) of the Act, ibid.