The Madras High Court on April 26 refused to interfere in the 2020 amalgamation of Lakshi Vilas Bank (LVB) with DBS Bank India Ltd (DBIL) but directed the Reserve Bank of India (RBI) do a fresh valuation of the assets and shares of both entities to decide on reduction in value of shares and Tier-II bond write offs.
“We direct RBI to carry out the exercise of valuing the shares and assets of both DBIL and LVB as on the date before the amalgamation and on that basis, take a decision afresh on reduction of the value of shares and writing off the Tier – II Bonds,” the Madras HC ruled.
Earlier, some investors had moved the court against LVB-DBS merger and arguing against the Tier-II bond write offs.The ruling is partly positive for the bond and equity investors as the RBI will have to now take a fresh decision on the Tier-II bond write off.
A bench comprising Chief Justice Sanjay V. Gangapurwala and Justice D. Bharatha Chakravarthy ordered the central bank to complete the exercise within a period of four months, keeping in mind the grievances of the shareholders and bondholders. In March, 2022, the Supreme Court had allowed Lakshmi Vilas Bank minority shareholders to shift all the cases related to LVB’s amalgamation with DBS Bank India Ltd to Madras High Court.
“We trust that the same would be done keeping in mind the grievances of the shareholders and the bondholders and the hardship faced on account of the scheme of compulsory amalgamation and amelioration of the same to the extent possible,” the HC Bench ruled.
LVB-DBS amalgamation
As per the draft scheme of amalgamation of the LVB with DBS Bank India, the entire amount of the paid-up share capital will be written off. “On and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank, shall stand written off,” according to the amalgamation scheme published on the RBI website.
After writing off the entire equity share capital of LVB as part of the scheme of amalgamation with DBS Bank India, the RBI had directed the bank to also write off tier-2 bonds worth around Rs 320 crore.
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.
RBI-forced merger
On November 17, shortly after announcing a one-month moratorium for LVB, the Reserve Bank of India (RBI) unveiled a draft scheme to merge LVB with DBS Bank India Ltd. (DBIL). Announcing the scheme of amalgamation, the RBI said DBIL will bring in additional capital of Rs 2,500 crore upfront, to support credit growth of the merged entity, the RBI said. This came after a failed attempt by the bank to merge itself with Pramod Bhasin’s Clix Group.
Following this some of the promoters and investors had initiated legal battles sin multiple courts against the RBI and government seeking to quash the merger alleging that the merger was carried out in a hurried fashion and against the interest of the investors.
The RBI had pushed for the merger of LVB with DBS after the bank’s financial situation deteriorated and the bank failed to raise survival capital despite multiple warnings by the central bank.
In the second quarter of FY 2021, LVB’s gross non-performing assets (GNPAs) stood at 24.45 percent, while net NPAs stood at 7.01 percent. The bank’s Tier 1 Capital ratio has turned negative; the overall Capital Adequacy Ratio (CAR), as per Basel Ill guidelines, was at a negative 2.85 percent as of September 30.
The bank’s business has shrunk over the year. Total business stood at Rs 37,595 crore at the end of September 2020, as against Rs 47,115 crore at the end of September 2019. The net loss after tax amounted to Rs 396.99 crore for the quarter ended September 30, as against a net loss of Rs 357.18 crore in the year-ago quarter.
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