Lakshmi Vilas Bank shares could soon reach zero; RBI’s resurrection plan kills equity shareholders

The full paid-up share capital of the troubled Lakshmi Vilas Bank is likely to be canceled as the merger with DBS Bank India progresses. The Reserve Bank of India (RBI) in the draft merger scheme has said that Lakshmi Vilas Bank shares or dentures, which are listed on any stock exchange, will be delisted after the merger. “As of the designated date, the total amount of paid-up capital stock and reserves and surplus, including balances in the transferor bank’s share / securities premium account, will be canceled,” says the draft scheme. Lakshmi Vilas Bank shares hit the lowest circuit when they plunged 20% Wednesday morning to trade at 12.4 rupees a share.

Lakshmi Vilas Bank has experienced a decline in the performance of its operations over the past three years. The South India-based bank has been operating at a negative CAR of 2.9% due to huge NPAs and without a CEO after shareholders removed the interim CEO recently. “Under the existing scheme, LVB’s paid-up capital / reserves will be extinguished in a similar way to the elimination of AT 1 bonds in the case of Yes Bank. Deposits will be transferred to DBS and therefore fully insured, while employees will be transferred to the transferee bank with the same remuneration as LVB for the next three years, ”said research and brokerage firm Emkay Global in a note.

Lakshmi Vilas Bank shares closed at Rs 15.60 a share on Tuesday. The stock has plunged more than 35% since the end of June this year. The central bank said that Lakshmi Vilas Bank has been unable to raise adequate capital to address issues related to its negative net worth and ongoing losses while experiencing continued deposit withdrawals and low liquidity levels.

Analysts at Emkay Global see the merger as a positive thing for DBS Bank India. “In our opinion, the merger of LVB (563 branches) with DBS Bank (33 branches), which is trying to expand its base in India, will be a positive long-term factor for the latter, while also putting an end to concerns on a potential merger with a large and healthy private bank, as has been the case in the past, ”they added. The extinction of capital / reserves and the merger with an unlisted bank will be negative for minority investors in Lakshmi Vilas Bank.