Lakshmi Vilas Bank (LVB) has adequate liquidity to meet the demand for funds and is tweaking systems in line with the new withdrawal cap, its administrator said on Wednesday, a day after the central bank seized the troubled lender, placed it under moratorium and initiated a merger with the local unit of Singapore’s DBS Bank.
As far as liquidity is concerned, enough care is taken," said T.N. Manoharan, a former non-executive chairman of Canara Bank, who was appointed LVB’s administrator on Tuesday. “Lakshmi Vilas Bank is also closely monitoring the availability of cash in the currency chest and coordinating with regulator in an appropriate manner to ensure that at no outlet there is any shortage of currency, even if a significant number of depositors turn up to withdraw the permissible amount," Manoharan said.
The bank is recalibrating its software to factor in the withdrawal cap of ?25,000 set by the Reserve Bank of India, he said, adding that he hopes things will be in place by Thursday. The moratorium and withdrawal cap will be in force till 16 December.
“As of now, we have not sought (additional liquidity from RBI), but we are confident we can meet the requirement for the depositors’ withdrawals by the bank itself and wherever required, we have the backing of the regulator to ensure there is no deficit or shortfall on that account," said Manoharan.
“In the moratorium period, business is at a standstill... The facility of withdrawals is being restored in a phased manner. The ATMs will start operating and the branches will start releasing cash. All things are being put in place," said Manoharan. The bank has deposits of ?20,050 crore at present, down from ?20,973 crore at the end of the September quarter. Depositors have withdrawn ?10 crore since the merger was announced on Tuesday evening.
Manoharan said employees have nothing to be concerned about because the merger scheme is such that employees’ interest is also taken care of.
“All the employees of Lakshmi Vilas Bank shall continue in service and will be deemed to have been appointed in the transferee bank (DBS Bank India Ltd) at the same remuneration and on the same terms and conditions," he said.
Asked if the deposit cap could be relaxed before the moratorium, he said the lifting of moratorium and restoration of normal flow of operations will happen simultaneously.
Meanwhile, rating agency Moody’s Investors Service said on Wednesday that the merger will strengthen DBS’s business position in India by adding new retail and small- and medium-sized customers. “We estimate DBS India’s customer deposits and net loans will increase by 50-70% following the merger. LVB will also add around 500 branches to DBS India’s 27 branches. India is one of DBS’s priority markets, and the acquisition of LVB fits DBS’s expansion strategy," it said in a report.
But, not everyone is pleased with RBI’s move. All India Bank Employees’ Association (AIBEA) said in a note that the announcement has come as a shock to customers and the general public. “This will create panic and doubt in the minds of people about the stability and dependability of banks because people keep their hard-earned savings in the banks. RBI, which is responsible for maintaining the stability of financial sector can’t escape its responsibility," said C.H. Venkatachalam, general secretary, AIBEA.