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Lakshmi Vilas Bank says itis looking at ways to bolster its capital adequacy ratio.ht (MINT_PRINT)
Lakshmi Vilas Bank says itis looking at ways to bolster its capital adequacy ratio.ht (MINT_PRINT)

LVB moratorium: Things that depositors, shareholders and borrowers need to know

  • Once the merger with DBS Bank India goes through, RBI would lift restrictions on LVB. The interest accrued on deposits and balance in accounts will be protected. DBS Bank India will pay the dues to depositors after the merger

NEW DELHI: If you are a depositor at the Lakshmi Vilas Bank (LVB), don’t be alarmed with the moratorium on the lender that restricts withdrawals. The Reserve Bank of India (RBI) has taken several measures to minimise issues that depositors could face due to the moratorium.

The RBI is also in the process of merging LVB with DBS Bank India, which has branded its banking services as digibank. Here are answers to some questions that could be bothering LVB’s customers.

Depositor Issues

Depositors cannot withdraw over 25,000 across all their accounts. If an individual has a savings account and a fixed deposit, he can withdraw a total of 25,000 from both accounts. The restriction is per depositor and not per account.

The RBI has allowed up to 5 lakh withdrawal in cases of medical emergencies. The same applies if depositors want to pay fees for higher education for themselves or their dependents in India or abroad. Also, if there is marriage or other such function, a larger amount can be withdrawn.

Once the merger with DBS Bank India goes through, RBI would lift these restrictions. The interest accrued on deposits and balance in depositors’ accounts will be protected. DBS Bank India will pay the dues to depositors after the merger.

Following the merger, however, DBS Bank India could change the interest rates on existing deposits. So, keeping track of interest rates is important.

Going by previous mergers, an acquiring bank can change interest rates and terms and conditions.

LVB offers 3.25% interest rate on savings of up to 1 lakh. DBS Bank India, on the other hand, offers 3.5% interest rates on the same.

LVB’s rate is fix at 6% for fixed deposits of one- and 10 year tenure. DBS Bank's rates on FDs are lower. It offers 4.05% on one-year FD, 4.3% on two-year FD, 5.5% on deposits over three years.

Shareholders' Issues

LVB’s shares will be delisted from stock exchanges.

"All shareholders are wiped out, and the shares will go to zero. (No DBS bank shares are given as compensation)," according to a note from Capitalmind, a Bengaluru-based investment research company. If you are a shareholder of LVB, the value of your shares will be zero.

The note also said that Tier-2 bondholders “seem to be fully protected". It means DBS Bank India will not write-downs the Tier-2 bonds. In Yes Bank’s case, Tier-2 bonds were written down. Some investors had approached courts against this move.

Borrowers' Issues

There are restrictions on payments that the bank must make. There are no restrictions on the money that the bank has to receive from borrowers. For those who have an ongoing loan with LVB, they will need to continue repaying their equated monthly installments (EMI) as usual.

There is a possibility that the interest rates, especially on floating-rate loans, could change once the merger comes through. Borrowers, therefore, need to keep track of interest rate changes on their loans.

DBS Bank India offers only limited loan products. For some loans, like home loans, it has partnered with housing finance companies.

If you are among borrowers who recently repaid a loan, you can approach the bank to release the mortgage or hypothecation. The government has allowed the bank to release pledged securities, mortgages, hypothecations, etc., in cases where the bank has received the entire payment.

The regulator has protected the depositors and bondholders but wiped out the shareholders’ investment value. Shareholders are part owner in a company. They reap benefits when the company profits and thus must bear the brunt when the business is making losses.

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