The 94 year old Lakshmi Vilas Bank which had been operating without a CEO since Sept'20 (section of investors ousted RBI appointed interim MD & CEO S Sundar) has been admitted to the Moratorium ward.
While the 30 day moratorium commenced from Tuesday, Nov 17, bank employees were clueless until Wednesday. They had a rough time explaining irate customers as to why withdrawals were capped at Rs 25,000.
The moratorium on LVB is the second of such actions imposed on a private bank by the regulator. Previously, the RBI had imposed moratorium in the case of Yes Bank as well as Punjab Maharashtra Bank which reported heavy NPAs.
Amid the melee, T N Manoharan the official administrator of Lakshmi Vilas Bank revealed vital signs about the bank and its operations. Padma Shri Manoharan, the 64 year old Chartered Accountant and former Chairman of Canara Bank was among key persons roped in by the RBI. Manoharan was also involved in the revival of Satyam. Here are five key highlights from a media-call:
CUSTOMERS OF LAKSHMI VILAS BANK:
For a bank which has close to 20 lakh depositors, the administrator reiterated several times that the focus was on ensuring safety of every rupee of the depositor. "Our first priority is getting every ATM and branch operational... The second priority is to make clear that there is nothing to panic... We want to instill confidence among depositors..."
Although, he refrained from revealing a date on when the moratorium could end, he hinted that standard operations could commence soon.
For exigencies, customers and depositors can approach the bank with a request to withdraw up to Rs 5 lakhs. Since the process is currently administered by the RBI, withdrawals are likely to be scrutinized from the regulator and hence may take time to process.
Speaking about the moratorium, Manoharan added, "This is shortest possible duration... We may not even wait for 30 days, it (merger) may crstallize much before, but I cannot commit or promise anything."
Asked for the need for a moratorium when there was no run on LVB for their money by the depositors, he said that during the amalgamation process, there may be a panic reaction, and hence the moratorium.
He also explained that the bank got into trouble after shifting focus from retail to corporate lending. With books yet to be audited, there is likelihood of corporate accounts turning into non-performing assets (NPA).
BANK BUSINESS & BRANCH OPERATIONS:
Sharing figures, he said that the bank's deposits as on date stood at Rs 20,050 crores while advances improved from Rs 16,620 crores as of Sept 30 to Rs 17,000 crores as on date. Advances improved owing to jewellery and gold loans during the festive period.
Sify.com spoke with customers in and around Navi Mumbai who expressed their anguish about the moratorium. Similar to the case of Yes Bank and PMC, account-holders were unable to transfer funds via digital mode neither were they able to access the ATMs. Not all branches had requisite cash to dispense even as branch managers and tellers had a rough time explaining the RBI draft. At the branches, the notification about the proposed merger was yet to be posted on the official bulletin or outside the branch.
Manoharan revealed that between Tuesday and Wednesday approximately Rs 10 crores was withdrawn by customers and added that the banking, ATM and branch softwares would be completely operational by Thursday.
"Statutory, Operational and legal processes are inevitable things that cannot stop. These things need to be administered and we also need to ensure that there are no defaults. The amalgamation (merger with DBS Bank) will be taken to the possible levels," he added.
AMALGAMATION WITH DBS
LVB with Rs 13,827 crores in outstanding loans as of the end of FY20 saw its capital adequacy ratio slip to 0.17 percent in June 2020. For banks, the minimum CAR stands at 9 percent. Gross NPAs reportedly touched 25.40 percent as of 2019-20.
Manoharan said that the LVB had approximately Rs 6,070 crore as deposits in current account/savings account (CASA) and about Rs 14,000 crore in term deposits.
Market-calls for RBI's action have gathered steam since Sept 2019 when the RBI placed it under a PCA (Prompt Corrective Action) snipping its wings to lend freely. Markets believed a PSU bank would have been more apt to amalgamate with LVB. For instance, AIBEA General Secretary, CH Venkatachalam is quoted in this report suggesting for a PSU to have taken-over the bank. "There are a number of corporate vultures that are circling the small-old generation private banks for a take over. These regional banks have their own tradition and culture and taking them beyond certain borders and expanding their size will result in failure," he said.
Manoharan added that a presentation from DBS got the RBI's nod. DBS India, the Singapore subsidiary with 33 branches in India would also spend Rs 2,500 crores "up-front" as additional foreign capital to acquire the new entity.
But, would DBS retain LVB staff?
FUTURE OF LVB EMPLOYEES:
The RBI's draft note leaves staff rationalisation at the hands of DBS which means that it was likely to close or shift existing branches.
Manoharan expressed confidence that 4,100 employees of Lakshmi Vilas Bank had nothing to worry about. "Employees working at 563 branches have nothing to be concerned about. The scheme of the amalgamation is such that all employees of LVB shall continue in services will be deemed to operate in same terms and conditions of the taking over bank."
On the aspect of a possible cultural clash in the aftermath of the merger, Manoharan quoted Charles Darwin, saying, "It is the one that is most adaptable to change that will survive... There will be several synergies from the merger..."
BUSINESS FROM THURSDAY:
Although the task of reviving the bank's business was a difficult one, Manoharan expressed optimism that it would turn-around within the stipulated timelines. Starting from Thursday he said that the branches should resume work. "We have drawn up do's and don'ts. All employees will be told what is permissible and what is not," he added.
With barely 24 hours having joined LVB as an administrator, Manoharan's primary objective is depositors even as the apex regulator waits for objections and suggestions on the viability of the draft merger proposal. The apex bank is likely to arrive at a final picture only after the comments are received (not later than November 20). This is likely to leave investors and even existing shareholders uneasy. They have been informed that equity-shares of Lakshmi Vilas Bank would be delisted from Indian exchanges in the eventuality of the merger.
Existing shareholders of Lakshmi Vilas Bank cannot vote or even have a say in the amalgamation process during the general body meeting since the Banking Regulation Act, a special Act, would override the provisions of the Companies Act which is a general law.
The trading counters on exchanges stand testimony to the unrest among investors over the regulatory action. Nearly 30 lakh shares were exchanged (probably sold) in the session on Wednesday. Shares of LVB ended at Rs 12.40, down by 20 percent eroding significant investor wealth. On Tuesday nearly 2 lakh shares were exchanged.
Shares have traded well below the Rs 40 levels since Sept 2019 when the RBI placed the bank under PCA.
The Moratorium on Lakshmi Vilas Bank according to the RBI notification is effective until December 16 2020.