Lakshmi Vilas Bank customers have withdrawn ₹10 crore since RBI's moratorium was announced last night

• Customers of Lakshmi Vilas Bank (LVB) have withdrawn ₹10 crore since the Reserve Bank of India (RBI) announced a moratorium on transactions yesterday evening.
• The RBI has limited withdrawals to ₹25,000 per depositor for the next one month, until December 16.
• However, LVB’s newly anointed Administrator and former Canara Bank Chairman TN Manoharan believes the bank has enough liquidity to pay depositors and the moratorium may be lifted before the deadline hits.

Customers of Lakshmi Vilas Bank (LVB) have withdrawn ₹10 crore since the Reserve Bank of India (RBI) placed it under moratorium yesterday evening.

“There is no run on the bank. Customers understand the fundamental strength of the institution,” said former Chairman of Canara Bank and the newly anointed Administrator of LVB, TN Manoharan.

However, the process to prepare banks to withdraw ₹25,000 per depositor is still ongoing leading to ‘technical issues’ at certain locations. According to Manoharan, the software within branches, ATMs, and other aspects need to be revamped before they can be opened up again.

“The books are closed and withdrawals are frozen when a moratorium is put in place. The regulator then permitted a ₹25,000 withdrawal limit. But the system can’t be released or opened up again as in. Software is getting updated to address that,” he explained during today’s press conference.

To address any shortage of cash at a particular branch, the manager has the option to either pull in funds from other branches or call on the currency chest.

Moratorium may end early
Even though Manoharan has only been at the helm for less than 24 hours, he is confident that the moratorium will be lifted before the deadline of December 16. According to him, there is enough liquidity with the bank to pay back the depositors.

On the downfall of the bank, he revealed the fault may lie in the bank’s focus shifting from retail loans to corporate lending. “Fresh slippages hiked gross NPA from 10% to 15% and then 25%. That is an alarming level of increase in the recent past,” he said.

Manoharan is also optimistic that the lifting of limits and the lifting of the moratorium will be coterminal.

LVB customers can withdraw upto ₹5 lakh for emergencies
Even though withdrawals have been limited to ₹25,000 per customer for the next one month, until December 16, there is a provision for customers to withdraw upto ₹5 lakh or the entirety of their account balance for emergencies. It includes medical expenses, marriage, or higher education among other situations for which evidence can be filed with the bank.

However, the power to approve these requests won’t lie with the branch managers. Instead, the request shall be passed onto the RBI, who will then yield the final verdict on whether or not the money can be released.

One of the questions that remains unanswered how the Fixed Deposits (FDs) at the bank will be resolved. While LVB offers an interest rate of up to 7%, DBS Bank India's rate is at most 4.5%.

However, the fate of FDs and other products of the bank do not lie with the current board that been appointed by the RBI. The new management, which will step in once the amalgamation process is complete, will determine the terms after the infusion of capital, according to Mahoharan.

Update note: The withdrawal figure was incorrectly cited as ₹10,000 crore and changed to₹10 crore.

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