Relief for depositors! Lakshmi Vilas Bank's withdrawal restrictions lifted

The central government on Wednesday approved merger of crisis-hit Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd (DBIL) and removed restrictions on withdrawal of deposits by depositors. The Tamil Nadu-based private sector lender had been under Reserve Bank of India (RBI's) moratorium for a period of 30 days till December 16, 2020, during which withdrawals for depositors were capped at Rs 25,000.

The government's decision to amalgamate LVB with DBIL will provide comfort to 20 lakh depositors and protect the services of 4,000 employees. With the approval of the scheme, there will be no further restrictions on the depositors regarding withdrawal of their deposits.

The amalgamation will come into force on November 27, 2020 and all the branches of the Lakshmi Vilas Bank will function as branches of DBS Bank India from this date. Consequently, customers, including depositors of the Lakshmi Vilas Bank will be able to operate their accounts as that of DBS Bank India with effect from November 27, 2020.

On November 17, the RBI had imposed 30 day moratorium on LVB restricting cash withdrawal at Rs 25,000 per depositor. The central bank has allowed withdrawals above Rs 25,000 in case of unforeseen expenses like medical emergencies, education expenses, etc. In parallel, RBI, in consultation with government, superseded the board of directors of LVB and appointed an administrator to protect the depositors' interest.

Also Read: Cabinet nod to DBS takeover of Lakshmi Vilas Bank; no curbs on cash withdrawal now

Shortly after announcing the clampdown on Lakshmi Vilas Bank, RBI had announced a draft scheme of amalgamation for merging the troubled lender with DBS Bank. After inviting suggestions and objections from the public and stakeholders, RBI prepared and provided a scheme for the bank's amalgamation for the government's sanction, well in advance of end of the period of moratorium so that restrictions on withdrawal faced by the depositors are minimised.

Also Read: Lakshmi Vilas Bank under moratorium: What does it mean for depositors?

The financial position of Lakshmi Vilas Bank has undergone a steady decline over the last three years. The troubled lender with 566 branches saw its capital adequacy ratio fall to 0.17 per cent in June 2020 as against the minimum 9 per cent. The bank had Rs 13,827 crore in outstanding loans and deposits worth Rs 21,443 crore at the end of the financial year 2019-20. The private sector lender is in urgent need of capital because of the losses it has been incurring for the last three years which jumped from Rs 585 crore in 2017-18 to Rs 836 crore in 2019-20. The bank's gross NPAs have touched 25.39 per cent in the same period.

By Chitranjan Kumar