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LVB - DBS Bank merger: Govt approves final scheme of amalgamation; no change in equity write-off clause

According to the draft scheme of amalgamation, the entire paid-up share capital of LVB would be written off after the transaction

November 25, 2020 / 07:55 PM IST

The Central government via a Finance Ministry notification on November 25 has sanctioned the final scheme of amalgamation between crisis-hit Lakshmi Vilas Bank (LVB) and DBS Bank India which will come into effect from November 27, 2020.

Importantly, there is no change in the equity write-off clause mentioned in the earlier draft scheme of amalgamation according to which the entire paid-up share capital of LVB would be written off post the transaction. Moneycontrol has reviewed the notification.

The RBI had invited suggestions and objections on the draft scheme of amalgamation after placing LVB under a moratorium on November 17.

Clause 7 of the final scheme of amalgamation reads as follows:

“Rights and liabilities of members and creditors of transferor bank.–- (1) On and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the shares or securities premium account of the transferor bank, shall stand written off.”

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Moneycontrol had earlier reported that institutional shareholders of LVB who are set to lose their entire investment are weighing legal action.

“The rapidly deteriorating financial position of LVB relating to liquidity, capital, and other critical parameters and the absence of any credible plan for infusion of capital has necessitated Reserve Bank to take immediate action in the public interest and particularly in the interest of the depositors and accordingly, the Lakshmi Vilas Bank Limited was placed under moratorium by an order of the Government of India in the Ministry of Finance, Department of Financial Services vide number S.O.4127(E), dated the 17th November 2020 in the exercise of the powers conferred by sub-section (2) of section 45 of the Banking Regulation Act, 1949 (10 of 1949),” the Finance Ministry notification said.

The same was also announced by Union Minister Prakash Javadekar at the press conference post the Union Cabinet meeting today. He stated that there will no further restrictions on the depositors regarding the withdrawal of their deposits. Adding: “The board which has been removed - the liability will be fixed and those who have made mistakes will be punished and there will be an overall improvement on oversight.”

The government decided to place the ailing Chennai-based private sector lender under moratorium till December 16, 2020. The move was based on an application made by the Reserve Bank of India and announced through an order issued by the Ministry of Finance.

The Reserve Bank of India, in consultation with the Central government, superseded the board of directors of LVB for a period of 30 days owing to a serious deterioration in the financial position of the bank.

TN Manoharan, former non-executive chairman of Canara Bank has been appointed as the administrator.

Institutional equity investors in LVB include Indiabulls Housing Finance Ltd, which had a 4.99 percent stake in the bank as of September 2020, Prolific Finvest Private Ltd (3.36 percent), Srei Infrastructure Finance (3.34 percent), MN Dastur and Co Pvt Ltd (1.89 percent), Capri Global Holdings Pvt Ltd (1.82 percent), Capri Global Advisory Services (2 percent), Boyance Infrastructure Pvt Ltd (1.36 percent) and Trinity Alternative Investment Managers (1.61 percent).
Ashwin Mohan
first published: Nov 25, 2020 03:41 pm

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