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Laxmi Vilas Bank Placed Under Moratorium, Centre Announces Amalgamation Scheme With DBS Bank India Ltd.
Laxmi villas bank has been placed under moratorium beginning from the 17th November to 16th December for one month. The center announced a draft amalgamation scheme with Asia's leading financial group namely DBS holding limited. The branch in India is known as the DBIL which is a subsidiary of DBS in Singapore. RBI announced that the depositors of the bank would not be eligible to withdraw a sum of more than 25000 rupees. For doing so, they would have to take permission from the central bank prior. However, the central bank told them that it is only a matter of time and they do not have to panic. Owing to the serious deterioration of the financial position of the bank the RBI further directed to replace itself with the board of directors of the bank.
The moratorium has been established under section 45 of the banking regulation act, 1949. The major purpose behind such a step is to protect the interests of the depositors and provide financial stability until another plan is ready. The bank further cannot make any payment to creditors exceeding the stipulated amount without the approval of the RBI. This means that it cannot extend new loans and advances. However, it can pay off its debts to creditors taken before imposing such a moratorium. The Bank can also make payments towards existing liabilities for call money or inter-bank borrowings including letters of credit. RBI has stated that DBIL has a "healthy balance sheet with strong capital support" and thus the merger would bring a lot of benefit to the Laxmi villas bank. Further, the central bank has called for all types of suggestions, objections, if any, from the depositors and creditors of both the banks. However, their deadline for such suggestions would be 20th November. Thus, the proposed amalgamation with DBS would be in the best interests of the bank.
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