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LVB-DBS deal: Post equity capital, RBI likely to write off tier-2 bonds of LVB as well

As part of the scheme of amalgamation of Lakshmi Vilas Bank with DBS Bank India, the Reserve Bank of India ( RBI) may soon move to also write off tier-2 bonds of the ailing lender worth around Rs 320 crore

November 26, 2020 / 06:37 PM IST
 
 
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After writing off the entire equity share capital of  Lakshmi Vilas Bank (LVB) as part of the scheme of amalgamation with DBS Bank India, the Reserve Bank of India ( RBI) may soon move to also write off tier-2 bonds of the ailing lender worth around Rs 320 crore, government sources with knowledge of the matter told Moneycontrol.

“The banking regulator is likely to soon communicate this decision to LVB,” one of the individuals cited above told Moneycontrol.

“An official announcement can be expected shortly,” a second individual told Moneycontrol.

“Since section 45 of the Banking Regulation Act has been invoked in LVB, such an entity is deemed to be non-viable or approaching non viability and usually as part of standard bond agreements, the RBI has the power to intervene in such cases,” a third individual familiar with the thinking of the RBI told Moneycontrol.

Moneycontrol could not immediately connect with the RBI or LVB for an official comment. It will be interesting to see if the tier-2 bondholders of LVB explore legal action if this move comes through. Promoter group entities have already dragged the RBI, the government, and DBS Bank to the Bombay High Court and challenged the final scheme of amalgamation.

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Earlier in the year, Yes Bank's AT1 bonds worth Rs 8400 crore were written down to zero as part of a government approved scheme of reconstruction for the struggling private sector lender. The move rattled investors who opted for legal recourse at various high courts.

“The whole purpose of writing off the AT1 Bonds is to ensure that the capital infused by the public sector bank i.e. SBI and other investors should not be diluted. The AT1 Bonds are a liability and hence, the same should be written off for the effective implementation of the Notified Scheme, which is made in the interest of the general public and to regain the confidence of the depositors,” the RBI had said in its defence.

However, in the case of Yes Bank, unlike LVB, the equity share capital was left untouched and a SBI led consortium invested funds to rescue the bank.
Ashwin Mohan
first published: Nov 26, 2020 06:30 pm

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