The Reserve Bank of India (RBI) took control of Lakshmi Vilas Bank (LVB) on Tuesday due to a “serious deterioration” in its finances. Withdrawals from the bank, which has been seeking a partner since last year to meet minimum capital buffers, had also been temporarily limited to 25,000 rupees, the government said.
Amid growing management problems and bad loans, the central bank has forced LVB to merge with DBS Bank India Limited (DBIL), the local unit of Singapore’s largest lender, DBS Bank. This is the first time that RBI has turned to a bank with a foreign parent to safeguard an Indian rival.
Here’s everything you need to know about the Lakshmi Vilas Bank crisis and the RBI action plan:
1. Over the past three years, LVB’s financial condition has been affected and the bank has incurred ongoing losses that have caused its net worth to drop, the RBI said. The central bank also mentioned LVB’s inability to come up with a plan to offset its negative net worth and ongoing losses. “In the absence of a viable strategic plan, declining progress and increasing non-performing assets (NPA), losses are expected to continue. The bank has not been able to raise adequate capital to address issues related to its negative equity and ongoing losses, ”the RBI said.
2. Chennai-based LVB’s problem escalated after RBI rejected its proposal to merge with Indiabulls Housing Finance Ltd in October last year. Thereafter, a proposed merger with Clix Capital Ltd also collapsed. Clix had submitted a non-binding offer for LVB in June, but the RBI said Tuesday that the troubled bank had not submitted any concrete proposals, after which it appointed a manager and replaced the bank’s board of directors.
3. The LBV was placed under a moratorium order on November 17 of this year. The order is effective until December 16, 2020, under section 45 of the Banking Regulation Act of 1949.
4. The scheme proposed by the central bank merger of LVB and the India unit of DBS Bank is under the special powers of the government and the RBI under Section 45 of the Banking Regulation Act of 1949.
5. The merger will bring stability and better prospects to Lakshmi Vilas Bank’s depositors, customers and employees after a period of uncertainty, the RBI said.
6. If the merger plan is approved, DBS will inject Rs 2,500 crore into DBIL, which will be fully financed from DBS’s existing resources. The home bank in Singapore will await the final decision on the proposed scheme by the RBI and the Indian government and will announce more details later.
7. DBS Bank, which has only 20 branches in India, will be able to expand its presence in the country with the plan proposed by RBI, as LVB has an extensive network of more than 550 branches and more than 900 ATMs throughout the country. .
(With contributions from the agency)
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