RBI on Wednesday said that Lakshmi Vilas Bank
will function as DBS Bank branch with effects from 27th of November.
This decision was taken after the cabinet approved the scheme for amalgamation
plan of LVB with DBS bank. Customers and LVB depositors, will be able to run
their accounts as DBS Bank India clients.
Union Minister’s words.
minister Prakash Javadekar said, ‘’The aggregation and resolution of LVB
pressure is in line with the government''''s commitment to a perfectly clean
banking system, while protecting the interests of depositors, the public
and financial systems’’, in
the media briefing after the cabinet meeting ended. He also added ‘’With the merger, there will be no more
restrictions on the depositors regarding the withdrawal of their deposit’’.
LVB’s Share price rises
The share price of LVB went up to Rs7.65 as on
November 26. The shares of LVB saw a drop in prices during mid-November and
were running on a very low price. The 52-week low/high indicates 6.95 on the
lower and 25.18 on the higher side. Some price gains in the share price can be
seen in the near future.
DBS India’s initiative
DBS bank India is on its toes to make sure
that essential services as usual are provided to the customers of LVB without
any glitches. DBS India will inject fresh capital of Rs2,500 crore into
LVB as part of the amalgamation plan and the entire share capital,
reserves and surplus will be written off. In addition DBS Bank is the largest
controlling shareholder in Temasek Holdings, Singapore''''s second-largest
independent wealth fund (after GIC).
For the past year, Lakshmi Vilas Bank, dealing
with bad lending and governance problems, has been struggling to find a
potential buyer. Late last year, Lakshmi Vilas Bank failed to secure permission
to merge with shadow lender Indiabulls Housing Finance from the Reserve Bank of
India. Its subsequent negotiations with Clix Capital, part of a company owned
by AION Capital, a private equity firm based in Mumbai also failed. After
overcoming these failures and heaps of debts LVB finally got a potential bank
to overtake it.
RBI has played a crucial role in coming for
rescue of the financial bodies when in need. The RBI has in the past resorted
to forced mergers. In September 2006, the central bank announced the
amalgamation scheme for the IDBI-United Western merger and the merger of the
Global Trust Bank with the Oriental Bank of Commerce in 2004. However, this is
the first time a bank with a foreign parent has been appointed by the central
bank to revive a beleaguered private lender. This year, LVB is the second bank
in the private sector to face problems. Yes Bank was put under a moratorium in
March. Then the government rescued Yes Bank by asking the State Bank of
India to inject Rs7,250 crore and take 45% of the stake in it.
LVB was not doing great according to its
quarterly released results in February. At the end of December, the capital
adequacy ratio stood at 3.46 percent and the proportion of gross bad loans to
total assets had reached 23.27 percent.
The merger of the 94-year-old struggling
lender with DBS India was suggested by the Reserve Bank of India on November
17. On the same day it put LVB under a one-month moratorium and capped
withdrawals at about Rs25,000 a month for the accounts of its customers. The
LVB board was also replaced by the Reserve Bank and T N Manoharan, the former
non-executive chairman of Canara Bank, was appointed as the bank''''s
administrator for 30 days.