What Happened In Lakshmi Vilas Bank? Moratorium, DBS bank, share market etc.

credits:businessline

An RBI moratorium news concerning Laxmi Vilas Bank was out some days before. As per this, one cannot make a withdrawal of more than Rs.25,000 in the next 30 days. This is the third case after PNB and Yes Bank, where a moratorium has been issued in the last year. The impact of this would be on shareholders and depositors also such incidents raise questions on the safety of the depositor's money. The majority portion of the share is held by the retail investors while the big investors had already left. Over here, the main question arises over the impact on an investor and depositor and also, the safety of money invested. Besides this, the other question that if you are an investor in other banks then this incident holds great learnings for you and for your investment strategies. A lot of questions might be surrounding your mind, and we at DayLightmedia, would solve all your queries.


LAKSHMI VILAS BANK

Let's first talk of Laxmi Vilas Bank, its news, moratorium and impact on equity shareholders and depositors. Also, we will talk about the time of inception of problems of the bank. In the second part, I will talk about the learnings for you as an investor from this case. This is quite important as you might be already aware of the news from a lot of sources but here, you need to know about the learning of new aspects to make a great investment. This will save you from a bad investment and also steer your investment strategy in the future. 

There are three aspects to this news- The first aspect is for the depositors who have invested their hard-earned money in the bank. Firstly, I would like to tell you that this bank has been kept on the moratorium, In the next 30 days, the maximum cap for withdrawal is Rs.25000. Here do not get confused regarding the amount of Rs.25000 as It is the total amount that can be withdrawn in the next 30 working days if there is no new notification by RBI (You cannot withdraw Rs.25000 in one day).
A small point over here is that in the earlier moratorium on banks, the money of depositors has been safe, there was no issue in this regard as RBI keeps in mind that there should be no impact on the depositors.

A moratorium is kept for solving liquidity concerns and structural problems. For the next 30 days, you might face some issue while withdrawing money as the cap is kept at Rs.25000 but over here, depositors need to know that their money is safe over here as RBI is closely monitoring this case. Other banks have also been brought forward to infuse capital in LVB. In short, there is no need to panic as the depositor's money is safe. 


WHAT RBI IS DOING?

credits:zeenews

Now let's talk about the efforts taken by RBI to improve the bank's situation. So, to improve the bank's situation, RBI has brought DBS bank in the picture. DBS Bank is Singapore's bank, which has a wholly-owned subsidiary in India. Hence, the Subsidiary bank in India is owned by DBS Bank with operations in Singapore. The DBS bank is going to infuse capital in LVB also, soon it will take over LVB. Now I will talk in detail about the draft policy brought forward by RBI So readers over here, DBIL Bank will support Rs.2500 crore, which will nurture the merged entity's credit growth. DBIL bank will merge and benefit in terms of increasing its footprint and expansion. On the other side, LVB will get additional capital and solve its sustainability issues and this will secure the money of the depositors.
But the question arises regarding the timing of this news. Let's talk about other indicators where adequate attention would have saved LVB from an additional capital need. Lets talk of some indicators which are important not just for LVB but for the entire banking industry. The next question arises regarding the pre-empt knowledge by the investors regarding an issue in LVB. I will talk of some parameters which are exceedingly important for the banking industry.


CONDITION OF LAKSHMI VILAS BANK

credits:thebharatexpressbnews

Firstly from all the quarters after December 2017, LVB has booked losses. In the quarter of March2020, LVB booked a profit of Rs.90 crore, where a major chunk of income was from 'Other Income'. From here, you can infer that the bank has been persistently booking losses. Now about the NPAs, the Gross NPA of banks like HDFC, Kotak Mahindra, Axis, and ICICI is not more than 2-3% while LVB has a Gross NPA of 24%, which means that 1/4 of its assets were NPAs. This depicts that Bank was fraught with problems which had advanced over the years. Despite all such problems, its shareholding pattern includes the highest portion of retail investors. The retail investors invest in it, overlooking the parameters of the fundamental analysis, Here I want you to know that while making an investment, the objective of risk maintenance is important than return making. You invest your hard-earned money to make returns, but in a bid to make high returns, you have chances of losing all your money. According to the Basel III framework, the capital adequacy ratio is considered desirable at 12-13% or even more for esteemed banks and in the case of LVB, it is -2.4%; this could have been a great red flag to stop your investment. All these issues prove that LVB had fundamental problems for quite a long time.
As a retail or fundamental investor, you could have paid attention to this, saved yourself from investing and losing all your money. According to the proposed draft resolution, after the merger, the total paid up equity capital can be written off and if this happens, the share price of LVB can also reach Rs.0 The word of caution over here is that this is a proper plan. The near future will determine where its share price will touch Rs.0 or not. This proposed draft, if implemented, can bring changes to the share price.


CONCLUSION

I would like to give you a suggestion to not speculate and use this only as learning, if you see a red flag in your investment, then you should timely exit from there. This way you can save your money also, you can avoid the mistake as a retail investor of investing in assets with high return where risk increases manifold times. With this, I wanted to give a message to the depositors and shareholders- The depositors should feel secure as their money is safe but the shareholders should study the bank's fundamental structure, business, and net interest margin before making an investment. When deposits of a bank are falling, Gross NPAs are sharply rising, solvency or Capital adequacy ratios are falling, and CASA ratio is poor then these are red flags to not enter in such a company's investment. Secondly, other investors' mistakes are making an investment by choosing low returns and significantly high risk. Always follow the principle of making good returns but also save your principal amount, making such investments puts your money at huge risk of losing money and low return chances. Avoid making such mistakes; the case of LVB teaches you how to become a remarkable investor. At this time, I would suggest you avoid speculation till the time there is clarity on this case.


AbhishekRawat
ContentWriter
@DayLightMedia