Global credit rating agencies have applauded the Reserve Bank of India’s (RBI) decision to merge the capital-hungry Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd (DBIL), the Indian arm of the DBS Bank of Singapore, saying the deal will benefit both lenders. .
As part of the merger, DBIL will inject fresh capital from ₹Rs 2,500 crore in LVB. The regulator had put LVB under Rapid Corrective Action in September 2019 and the search for a white knight had been underway ever since.
The deal is positive for India’s banking sector and will bring much-needed relief to LVB, S&P Global Ratings said.
“We believe that RBI took DBIL’s healthy balance sheet and capitalization into account when considering potential suitors for LVB,” said S&P.
RBI issued a banking license to DBIL on October 4, 2018 to operate as a banking company. As of June 30, its total regulatory capital was ₹Rs 7,109 crore and its gross non-performing assets (GNPA) and net NPA were down 2.7% and 0.5%, respectively. DBIL’s risk-weighted capital / asset ratio was 15.99%.
The proposed acquisition of LVB by DBIL is not large enough to immediately affect DBS’s credit ratings, Fitch Ratings said. “We view LVB’s branches as one of its most sought-after residual assets for a foreign buyer and we believe that the pre-built platform, which will allow for deeper market penetration, is the key attraction for DBS,” he said.
DBS is moving towards a hybrid physical-digital approach and aims to build more than 100 physical contact points in India by the end of the year, Fitch said. The proposed acquisition, he said, fits in with the bank’s stated strategy and could significantly accelerate its ambitions in India following a successful integration to help it seize growth opportunities in the medium term.
Moody’s said the merger will strengthen DBS’s business position in India by adding new retail and small and medium-sized clients.
Moody’s estimated that DBIL’s client deposits and net loans will increase between 50% and 70% after the merger.
.
