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Beleaguered-LVS banks depositors to run their accounts as DBS India clients amidst the merger by RBI November 26 2020Lakshmi Vilas Bank

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LVB - DBS Merger Impact

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

The Union 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’’.


India approves merger of Lakshmi Vilas Bank to Singapore''''s DBS |  MorungExpress | morungexpress.com

Lakshmi Vilas Bank 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’s role

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.


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