Lakshmi Vilas Bank account holders can withdraw up to Rs 25,000, including outflows on SIPs and EMIs. Your money is safe. But change bank mandates soon. The merger with DBS Bank will smoothen things
On November 17, the Reserve Bank
of India (RBI) imposed a month-long moratorium on cash
strapped Lakshmi Vilas Bank (LVB), a small private sector bank.
If you are a customer of LVB, then you cannot withdraw more than Rs 25,000
until December 16, 2020. This includes your savings, current and other deposit
accounts, including your fixed deposits. If you have more than one deposit
account with the bank, then the moratorium will apply cumulatively on all your
accounts. There’s a small relief in cases of emergencies. The RBI has said that
you could withdraw up to Rs 5 lakh for medical emergencies, payment towards
higher education or for marriage.
“For LVB, the negative noise was
there for quite some time. The moratorium comes in the wake of deteriorating
financials of the bank, failed merger attempts in the past with Indiabulls
Housing Finance and Clix Capital,” says Joydeep Sen, corporate trainer and
author. Also, the shareholders of the bank had voted against the
appointment of seven directors at the annual general meeting in September 2020.
The RBI has assured that the
depositor’s money is safe and that there is no reason to panic with the
announcement of a month-long moratorium on withdrawals. Shortly after
announcing one-month moratorium for LVB, the central bank unveiled a move to merge LVB with DBS Bank India Ltd (DBIL). “Merging the bank
with a stronger bank benefits the depositors of the weaker bank. The
depositor’s money is safe in the amalgamation announced,” says Sen.
“Given the small size of LVB, the
RBI seems to have chosen the route of amalgamation with another foreign private
bank instead of a unique restructuring scheme as in the case of Yes Bank, where
investors, including banks were called upon to infuse capital and thus revive
it independently,” says Anand Dama, senior research analyst at Emkay Global
Financial Services.
Are my deposits safe with LVB?
All the depositors of LVB will
have access to their principal and accrued interest, just as before, once the
amalgamation is done. Your money is protected. “But after the moratorium, the
high interest rates paid by LVB on deposits will be lowered to what DBS Bank
pays to depositors,” tweets Kirtan Shah, Chief Financial Planner at SRE. For
instance, if you have a one-year fixed deposit (FD) with LVB, the present
interest rate is 6 per cent, but it will be reduced to the interest rate
offered by DBS Bank, which is 4.05 per cent for a one-year FD.
However, as a depositor, you can
continue with the deposits or withdraw your money after the merger.
Your SIP, EMI payments will stop, albeit temporarily
Some LVB customers might have
enrolled for systematic investment plans (SIP) or may be paying equated monthly
installments (EMIs) on their loans. The moratorium imposed on your LVB account
includes the auto payments (or withdrawals in other words) that go towards your
EMI and SIP commitments.
But your EMIs won’t stop even in
such cases if they are less than Rs 25,000. Talk to your lender and ask for a
temporary leeway. Typically, your lender can extend your deadline by a couple
of months. If nothing else works and much of your life’s savings are stuck in
your LVB accounts, you might have to withdraw from your investments to tide
over the crisis temporarily. Harshvardhan Roongta, Principal Financial Planner
at Roongta Securities says, “During the moratorium period, your LVB account
will not be debited. So, immediately register fresh ECS mandates with a
different bank account for such payments to be cleared.”
SIP and ECS payments are also
covered in the Rs 25,000 withdrawal limit imposed. In simple words, SIPs of
less than Rs 25,000 will continue as usual. Meanwhile, dividend and redemption
inflows would continue into your LVB account. Just that your money (beyond Rs
25,000) is stuck till December 16.
However, you would need to review
your bank mandate once your account goes over to DBS. Your mutual fund allows
you to register up to five bank accounts. You can either register your new DBS
account in your SIP mandate or a new bank account. You might, however, need to
brace yourselves for dealing with a different bank branch once the amalgamation
is complete, depending on call that DBS takes.
Inform your employer and get your
salary account changed to another bank to ensure that you get your salary on
time. Talk to your employer if your salary account is with LVB.
But what if I have a loan with LVB itself?
In case you have a loan repayment
to be made to LVB itself – from your salary account with LVB – then the bank
will debit your bank account first towards the EMI liabilities. The remaining
amount will then be available to you for withdrawals, subject to the overall
cap imposed. However, if the amount in your LVB account is insufficient, then
you are liable to pay the balance to the bank. You cannot default on LVB loans
as DBS can recover the amount from you.
Will my deposit be insured?
The deposits with all banks are
guaranteed by the Deposit Insurance and Credit Guarantee Corporation (DICGC),
to the tune of Rs 5 lakh, only if your bank is liquidated. This is not the case
with LVB, as the RBI has initiated an amalgamation process with DBS Bank after
announcing the one-month moratorium on withdrawals.
Kalpesh Ashar, founder, Full
Circle Financial Planners and Advisors says, “These measures by the Reserve
Bank of India are precautionary actions to safeguard customers’ savings with
the bank.”
Also, the timing of the
announcement appears to be well-thought-out, as Diwali shopping is done and
most EMIs and SIP payments happen in the first half of a month.
Don’t panic
Just because the RBI has imposed
restrictions on withdrawals from LVB, there is no need to panic. The moratorium
has been imposed for a month. The plan to merge with DBS Bank is also announced
immediately as proactive measure by the RBI.
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