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Depositors Distressed After RBI Places Lakshmi Vilas Bank Under 30-day Moratorium

After the RBI placed Lakshmi Vilas Bank Ltd under a moratorium, depositors expressed their distress, sharing how a withdrawal cap of Rs 25K was 'not adequate'.

Lakshmi Vilas Bank

After the Reserve Bank of India (RBI) placed Lakshmi Vilas Bank Ltd under a moratorium for 30 days, depositors expressed their distress, sharing how a withdrawal cap of Rs 25,000 was 'not adequate' amid the financial difficulties that had hit them in a post-pandemic period. 

A customer of the bank, in Madurai, says, "We were shocked. Withdrawal of Rs 25000 is inadequate during this time when people are in need of money." Another in Rameswaram said, "Rs 25000 withdrawal is difficult as it's a tourist spot. Request authorities to raise it."

Cautioning the customers to not panic, the RBI has proposed the amalgamation of the Lakshmi Vilas Bank Ltd. with the DBS Bank India Ltd, which in turn is a subsidiary of Asia’s leading financial services group- DBS Group Holdings Limited. The RBI has announced that the scheme will be in place well before the expiry of the moratorium period to ensure that the depositors do not face undue hardship. 

Read: Lakshmi Vilas Bank Placed Under Moratorium Until Dec 16; RBI Proposes Amalgamation Scheme

Read: Loan Moratorium: RBI Urges SC To Lift Interim Order Banning Declaration Of NPAs

Lakshmi Vilas Bank placed under moratorium 

In a big development on November 17, the Lakshmi Vilas Bank Ltd. was placed under moratorium by the Reserve Bank of India until December 16 as per Section 35A of the Banking Regulation Act, 1949. A scheduled commercial bank with a pan-India network of 563 branches, it was founded by seven businessmen in 1926. In the last few months, RBI has initiated such action against the Punjab and Maharashtra Co-operative Bank and Yes Bank.

In the moratorium period, the customer of this bank shall not be able to withdraw more than Rs.25,000 from all accounts combined. However, the RBI may allow withdrawals up to Rs. 5 lakh in case of medical treatment, higher education, marriage, or any unavoidable emergency. Apart from this, the bank has been permitted to spend money only to meet obligations such as salaries of employees, rent, taxes, stationery, printing, postage, telegrams, legal expenses not exceeding Rs. 50,000, etc.

In its order, the RBI made it clear that the Lakshmi Vilas Bank Ltd. has serious governance and management issues. It highlighted that the bank had incurred a net loss of Rs. 836 crore and Rs. 112 crore for the fiscal year 2019-20 and the quarter ending June 30, 2020, respectively. It added, "As there is no likelihood of an increase in fresh advances and slippages may continue, asset quality position is likely to deteriorate materially during FY 2020-21". 

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(With Agency Inputs)

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