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Under moratorium, RBI says Lakshmi Vilas Bank to merge with DBS Bank

Lakshmi Vilas Bank Moratorium and Merger: DBS Bank India will bring in additional capital of Rs 2,500 crore upfront, to support credit growth of the merged entity, the RBI said.

November 17, 2020 / 07:30 PM IST

Shortly after announcing one-month moratorium for Lakshmi Vilas Bank (LVB), the Reserve Bank of India (RBI) said 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 Rs2,500 crore upfront, to support credit growth of the merged entity, the RBI said.

Moneycontrol first reported that DBS is one of the contenders for LVB. Earlier, the finance ministry had put the bank under one-month moratorium citing its worsening financials.

Owing to comfortable level of capital, the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with CRAR at 12.51 per cent and CET-1 capital at 9.61 per cent, without taking into account the infusion of additional capital, the RBI said.

ALSO READ: Govt places Lakshmi Vilas Bank under moratorium till December 16, RBI supersedes bank's board

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This development is significant since the bank has been in the news for its worrying financials and its talks with Clix Group for a possible merger.

An urgent capital infusion is the oxygen the bank desperately needs to stay alive. On September 25, shareholders of the Chennai-Headquartered bank witnessed some high drama-filled, unprecedented developments at its annual general meeting (AGM).

The appointment or re-appointment of all seven directors, including the Managing Director and CEO, S Sundar, was rejected by anguished shareholders along with that of the statutory auditors. The outcome of the AGM was unprecedented in many ways. It is rare that shareholders oust an RBI-approved CEO in a bank, along with more than half the directors on the board, and the auditors as well for good measure.

LVB's second quarter numbers remind us the sorry state of its deteriorating financials. Gross non-performing assets (GNPAs) continue to be too high at 24.45 per cent, even the net NPAs stay too high at 7.01 per cent. The bank’s capital levels are at precarious levels.

The RBI said it is superseding the board of the bank in exercise of the powers conferred under Sub-section (1) of Section 36 A C A of the Banking Regulation Act 1949 for a period of 30 days. The central bank cited serious deterioration in the financial position of the bank.

“This has been done to protect the depositors’ interest,” the RBI said.  The RBI has appointed T. N. Manoharan, former Non Executive Chairman of Canara Bank, as the administrator of the bank.
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TAGS: #DBS #LVB
first published: Nov 17, 2020 07:16 pm
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