Why Lakshmi Vilas Bank Ltd (LVB) put under Moratorium?

Reserve Bank of India imposed a 30-day moratorium on Lakshmi Vilas Bank Ltd (LVB) and proposed a draft scheme for its amalgamation with DBS Bank India. Putting under moratorium means temporary suspension of activities.

Reason behind putting LVB under moratorium

  • For the last 3 years, the Bank had been posting continuous losses. Its NPA started to mount leading to a situation of capital erosion. The Bank was placed under Prompt Corrective Action (PCA) since September 2019.
  • In the absence of any viable alternative, the Government of India, in consultation with the Reserve Bank of India, has placed LVB under Moratorium for a period of 30 days till 16th December 2020, as per the provisions of Sec 45 of Banking Regulation Act 1949.
  • Also, under Sec 35A of Banking Regulation Act 1949, LVB shall not make any investment, incur any liability, make payments to depositors exceeding Rs.25,000 and dispose off any properties etc.

Major issues faced by old-generation private banks

Most of the banks do not have strong promoters. It is leading to mergers or forced amalgamation of the banks. LVB, Yes Bank and Punjab & Maharashtra Co-operative Bank are coping up with such type of issues.

Why does Promoters matter for a bank?

Promoters play an important role in raising money for the banks pledging of promoter’s shares when they want to expand their operation. They exercise their control by making key decisions about the banks. However, absolute authority of the promoters can also result in autocracy.

Lakshmi Vilas Bank Ltd (LVB)

The Lakshmi Vilas Bank Ltd (LVB) was formed by a group of 7 businessmen in the year 1926. It has its registered office at Karur and is headquartered at Chennai. The Bank was incorporated under the Indian Companies Act 1913, during the British rule in the nation. In 1958, it became a scheduled commercial bank by obtaining a license from RBI. It has a presence all over the country.