• Recently, the Reserve Bank of India (RBI) has decided to impose a 30-day moratorium on Chennai-based Lakshmi Vilas Bank Ltd (LVB).



  • LVB was placed under the prompt corrective action (PCA) framework in September 2019 considering the breach of PCA thresholds as on 31st March, 2019.
  • The RBI has specified certain regulatory trigger points, as a part of prompt corrective action (PCA) Framework.
  • The RBI had come to the conclusion that in the absence of a credible revival plan, with a view to protect depositors’ interest, there is no alternative but to apply to a moratorium under section 45 of the Banking Regulation Act, 1949.


  • Domino Effect of Yes Bank Crisis: The LVB episode started unfolding after the RBI and banks led by State Bank of India bailed out fraud-hit Yes Bank in March 2020.
  • On the same lines, Punjab and Maharashtra Cooperative Bank was hit by a loan scam highlighting the riskiness of banks, especially cooperative banks.
  • Declining Net Worth: The financial position of the LVB has undergone a steady decline, with continuous losses over the last three years eroding the bank’s net worth.
  • Inadequacy to Raise Capital: LVB has not been able to raise adequate capital to address the issues and was also experiencing the continuous withdrawal of deposits and low levels of liquidity.
  • Governance Issues: Serious governance issues in recent years have led to a deterioration in the performance of the bank.
  • Lack of Promoters: The functioning of LVB, along many such banks, has been under scrutiny as most of them do not have strong promoters, making them targets for mergers.
  • Rising NPAs: Its gross non-performing assets (NPAs) stood 25.4% of its advances as of June 2020, as against 17.3% in 2019. Due to which, it was unable to raise capital to shore up its balance sheet.



  • The RBI monitors the performance of private banks and large Non-Banking Financial Companies (NBFCs).
  • On LVB, it has imposed a moratorium whose cash withdrawal limit has been capped at Rs. 25,000.
  • It has also put in place a draft scheme for its amalgamation with DBS Bank India.
  • One safety net for small depositors is the Deposit Insurance and Credit Guarantee Corporation (DICGC), an RBI subsidiary, which gives insurance cover on up to Rs. 5 lakh deposits in banks.
  • RBI may ask for capital infusion by other banks and financial institutions, putting in equity capital in the reconstructed entity.
  • Budget 2019 had announced a Rs. 70,000 crore bank recapitalisation programme to help Public Sector Banks shore up their capital reserves and enhance credit flow into the economy.



  • In September 2020, an expert committee headed by K V Kamath came out with recommendations on the financial parameters required for a one-time loan restructuring window for corporate borrowers.
  • The crisis provides an opportunity for the various stakeholders to review their existing frameworks and revise them accordingly suiting to timely needs.


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