The Union Cabinet on Wednesday approved the merger of Lakshmi Vilas Bank (LVB), which suffers from capital shortages, with DBS Bank India. The Reserve Bank of India proposed on November 17 to merge the 94-year-old lender with the Indian branch of DBS Bank of Singapore. As part of the merger, DBIL will inject fresh capital from ₹Rs 2,500 crore in LVB.
On November 17, the central bank placed Lakshmi Vilas Bank on a one-month moratorium, replaced its board of directors, and limited withdrawals to ₹25,000 per depositor. “With the merger, there will be no more restrictions for depositors regarding the withdrawal of their deposit,” said Union Minister Prakash Javadekar.
Analysts and global credit rating agencies have applauded RBI’s move, saying it will benefit both parties. “The swift action taken by the RBI on the Laxmi Vilas Bank affair affirms depositors’ faith in the banking system,” Ajay Shaw, Partner at DSK Legal.
“The merger of LVB with another bank is a very prudent step to save depositors and mitigate the systematic disruption associated with it. The image of the government and the regulator is reinforced by such timely action and response,” said S Ravi, Former Chairman of the Bombay Stock Exchange (BSE) and Managing Partner of Ravi Rajan & Co.
DBS was the first foreign bank to receive a banking license after the central bank allowed foreign banks to establish a wholly owned subsidiary in 2014. “Given that DBS will likely use digital capabilities to enhance its physical footprint in India, the proposed deal a 30-40% increase in DBS’s Indian assets, “said JPMorgan analysts Harsh Wardhan Modi and Saurabh Kumar.
The regulator had placed LVB under Rapid Corrective Action in September 2019. The lender previously reported an extension of its net loss by ₹397 million rupees in the second quarter ending September 2020 due to increased bad loans and provisions. On September 25, the bank’s shareholders had removed seven members of the board, including then-CEO and CEO S Sundar. On September 27, the RBI appointed the CoD consisting of three independent directors Meeta Makhan, Shakti Sinha and Satish Kumar Kalra, under the leadership of Meeta Makhan.
Moody’s said the merger will strengthen DBS’s business position in India by adding new retail and small and medium-sized clients.
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