Lakshmi Vilas Bank was placed under a one-month moratorium on Tuesday and withdrawals were capped at Rs 25,000.

Lakshmi Vilas Bank has assured depositors that their money is safeImage Credit:
Money Banking Wednesday, November 18, 2020 - 16:59

Chennai-based Lakshmi Vilas Bank’s ATMs and branches will soon start operating seamlessly in giving out cash, and that is the first priority of the bank, LVB’s administrator TN Manoharan told the media. He said that there is no reason for panic, that the interest of depositors and customers will be protected, and that there is no lack of cash to pay depositors who want to withdraw. Manoharan said that the bank’s software is being tweaked in order for customers to be able to withdraw by factoring in the cap, and is expected to be operational by Thursday morning. 

The Union Government placed LVB under a one-month moratorium on Tuesday and capped all withdrawals at Rs 25,000. This was followed by RBI proposing an amalgamation of LVB with DBS Bank India, which would bring in Rs 2,500 crore in capital. DBS will take over obligations and liabilities of LVB. It appointed T.N. Manoharan, a former Non-Executive Chairman of Canara Bank, as the Administrator of the bank.

While depositors can only withdraw Rs 25,000 until December 16, they will be able to access the rest of their money and investments after December 16. This limit would also include systematic investment plans (SIPs), if any, which means that SIPs less than Rs 25,000 will get debited as usual and reports suggest that any dividend and redemption will come into your account. 

Read: Govt puts Lakshmi Vilas Bank under moratorium for a month, withdrawals capped

Manoharan maintained that there is no run on the bank, which is a situation where many depositors withdraw their money as they believe the bank will cease to exist soon. However, since the announcement of the moratorium, depositors have so far withdrawn Rs 10 crore from the bank, Manoharan said. 

Talking about the state of the bank, Manoharan added that the focus of the bank moved to corporate borrowers, which augur well for the bank. For the quarter that ended on September 30, LVB reported a net loss of Rs 397 crore and a gross Non Performing Assets (NPA) ratio of 24.45%.

The bank, he said, has deposits of Rs 20,973 crore as of September 30, which has now marginally reduced to Rs 20,050 crore. Meanwhile, advances saw a slight increase from over Rs 16,500 crore as of September 30 to Rs 17,325 crore presently.  

He said that while the bank’s management had earlier assured people of the bank’s stability, a steep rise in bad loans and no firm proposal for infusion of cash over the past two years prompted RBI from undertaking this measure. 

“There was an alarming level of increase of NPA and finding that there is no firm proposal of capital infusion and one proposal that was there was not acceptable by RBI,” he added. LVB was in talks for several months with Clix Capital for a merger. 

“This is in the best interest of all stakeholders and we will be restoring confidence of depositors and customers,” Manoharan said. He added that they are confident a resolution will be put in place before the deadline. 

Also read: Shareholders of Lakshmi Vilas Bank may get nothing from proposed merger

He also added that all employees of the bank will become employees at DBS Bank India at the same remuneration and the same prevailing terms and conditions of service. It is also important to note that employees did not receive hikes in the current round because of the health of the bank. With regard to key managerial positions, he said flexibility is being given to DBS, but it cannot be said that all of them will lose their jobs.

The capital that DBS Bank is proposed to bring in Rs 2,500 crore will be to provide the growth capital that the institution will require post the merger, Manoharan added. 

He said that the objective is not just to survive but also to trigger credit growth, support the institution with fresh credit growth. “This capital is to augment resources of the bank,” he said. 

He added that the priority is to resurrect the business after the scheme is amalgamation is completed. 

With regard to interest rates of fixed deposits (as LVB offered a higher rate of interest than DBS), Manoharan said it will be a decision of the new management. As per reports, for FDs between 1-3 years, LVB currently offers 6% interest rate, while DBS offers 4.05-4.3%. For FDs with a tenure of 3-5 years, LVB offers 6%, while DBS Bank offers 5.5%.

“All anomalies will be matters to address as amalgamation takes place. New management will evaluate the situation and adapt to the needs of customers and depositors,” he said. 

In the case of employees of LVB misappropriating fixed deposit receipts worth Rs 729 crore of Religare Finvest Limited, Manoharan said the law will take its course, but the investigation is currently not priority.

Also read: What is ailing Chennai’s Lakshmi Vilas Bank and should depositors be worried?

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