A day after the Reserve Bank of India superseded the board of Lakshmi Vilas Bank (LVB) and imposed a moratorium on the withdrawal of deposits, T.N. Manoharan, the administrator appointed by the central bank, tried to assure the bank’s customers that their deposits in the bank were extremely safe and that the bank had enough liquiditiy to pay back depositors.
“We are here to reassure customers that there is absolutely nothing to worry, their money is safe with Lakshmi Vilas Bank and not one rupee can be considered to be at risk,” Manoharan, told reporters on Wednesday.
LVB has seen a sustained fall in its deposits over the last few quarters as customers worried over the lender’s health withdrew their money. Currently, it has deposits of around Rs 20,000 crore, including Rs 14,000 crore in term deposits and Rs 6,000 crore in CASA (current account and savings account) deposits. The advances are close to Rs 17,000 crore, he said.
LVB’s financial condition has been deteriorating and non-performing assets have risen. The bank was in merger talks with Indiabulls Housing Finance, but those plans were rejected by RBI last year. More recently, the Chennai-based bank was in talks with Clix Capital, though these seem to have hit a dead end. Against this backdrop, the RBI took control of the bank late on Tuesday and imposed a one-month moratorium.
“There have been certain issues on the governance and management front and that precisely led to the imposing of the PCA (prompt corrective action framework) by the regulator and finding that there is no firm proposal for infusion of capital in the last two years, this kind of moratorium has been invited,” said Manoharan.
During the moratorium period, cash withdrawals have been capped at Rs 25,000. People can also withdraw up to Rs 5 lakh or the available money in the person’s account for emergency purposes like higher education, weddings in the family or any medical exigency.
Manoharan said that the bank officials were working overnight to ensure that the bank’s systems would be geared up to handle the deposit requests and people would be able to withdraw cash up to the permitted limit without any hassles and there would not be any run on the bank.
“LVB is monitoring closely about the availability of cash in the currency chest, as well as they are coordinating with the regulators to ensure that at no outlet there will be any shortage of currency even if significant number of depositors do turn up to withdraw the permissible amount,” said Manoharan.
He also said that the priority for him was now to ensure that RBI’s draft proposal to merge LVB with DBS Bank India is completed. DBS Bank India is the wholly owned subsidiary of Singapore’s largest lender DBS Bank.
“The priority now is to resurrect the business by implementing the scheme of amalgamation after due process and legal measures are completed,” said Manoharan.
In the July-September quarter, LVB had reported a net loss of Rs 397 crore, compared with a loss of Rs 357 crore a year ago. Its tier 1 capital ratio had also turned negative.
On the other hand, DBS Bank’s total regulatory capital was Rs 7,109 crore at the end of June 30, and its capital to risk weighted assets ratio (CRAR) was comfortable at 15.99 per cent against requirement of 9 per cent. The common equity tier-1 (CET-1) capital at 12.84 per cent, was also well above the required 5.5 per cent. DBS Bank also will bring in additional capital of Rs 2,500 crore upfront, to support credit growth of the merged entity.
Even as the central bank has acted swiftly to ensure that the depositors don’t lose any money, its minority shareholders fear they will lose everything.
As per the draft scheme of amalgamation, on and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus shall stand written off, the transferor bank shall cease to exist by operation of the scheme and its shares or debentures listed in any stock exchange shall stand delisted.
As of September end, Life Insurance Corp of India, Aditya Birla Sun Life Insurance, Indiabulls Housing Finance, SREI Infrastructure Finance and Capri Global Holdings were some of the institutional investors in LVB. There are reports that some of the institutional investors are exploring legal options as the amalgamation proposal will leave shareholders high and dry.
LVB stock hit the 20 per cent lower circuit to close at Rs 12.40 on the BSE on Wednesday even as the broader markets ended in the green. The BSE Sensex rose 227 points or 0.5 per cent to close at 44,180.05, the first time it has closed above the 44,000 level.
Manoharan refused to comment on how the minority shareholders will be treated; the amalgamation plan was still only in the draft phase, he pointed out.