Giving finality to the efforts towards salvaging LVB, the Union Cabinet on Wednesday gave its nod to merge LVB with DBS Bank India
The government on Wednesday asked the Reserve Bank of India (RBI) to take action against those responsible for debacle at troubled private lender Lakshmi Vilas Bank
(LVB) and improve oversight of entities under its regulation.
Giving finality to the efforts towards salvaging LVB, the Union Cabinet on Wednesday gave its nod to merge LVB with DBS Bank
India (DBIL). The amalgamation will come into force on. November 27. All the branches of LVB will function as branches of DBIL and LVB customers, including depositors, will be able to operate as DBIL customers from Friday.
The moratorium on LVB will also be lifted on November 27. DBIL is making arrangements to ensure that service, as usual, is provided to LVB customers, the RBI said in a statement. The banking regulator had placed LVB under the Prompt Corrective Action (PCA) regime in September 2019 due to a sharp rise in bad loans and weakening profitability.
Briefing media after the Cabinet meeting, Union minister Prakash Javadekar said the board (of LVB) has been removed, liability would be fixed and those who made mistakes would be punished. There would be an improvement in overall oversight also so as not to repeat mistakes these in the future, he said. This is in line with the cleaning up of the banking system.
The government has told the RBI that the guilty should be punished. “The people who start banks, commit fraud, and bring them on the verge of collapse should be punished. Together with this, there should be an improvement in the RBI oversight mechanism,” the minister said.
On November 17, the RBI had placed LVB under a moratorium for 30 days to protect depositors' interest and in the interest of financial and banking stability. Also, the RBI, in consultation with the government, superseded the board of directors of LVB and appointed an administrator to oversee affairs of the bank.
Before the RBI’s move, LVB was in talks for months with Clix Capital, a non-banking financial company, for a possible merger. However, the discussions did not lead to any effective outcome, leading to further uncertainty about the fate of the bank.
The speedy amalgamation (of LVB with DBIL, subsidiary of Singapore based DBS Bank) and resolution of the stress in LVB was in line with the government's commitment to a clean banking system, the government said in a statement.
The combined balance-sheet of DBIL would remain healthy even after amalgamation and its branches would increase to 600. LVB has 563 branches and five extension counters with a pan-Indian presence. It has 974 ATMs and has deployed PoS machines at various merchant establishments.
DBIL has the advantage of a strong parentage of DBS, a leading financial services group in Asia, with a presence in 18 markets and headquartered and listed in Singapore.
As on June 30, 2020, DBIL’s total regulatory capital was Rs 7,109 crore. Its capital adequacy ratio (CAR) was comfortable at 15.99 per cent (against the requirement of 9 per cent) -- of which common equity tier-1 (CET-1) capital was at 12.84 per cent, well above the requirement of 5.5 per cent. Its gross non-performing assets (NPAs) and net NPAs were low at 2.7 per cent and 0.5 per cent, respectively. Although the DBIL is well capitalised, it will bring in additional capital of Rs 2,500 crore upfront to support credit growth of the merged entity.
Owing to a comfortable level of capital, the combined balance sheet of DBIL would remain healthy after the amalgamation. The CAR will be at 12.51 per cent and CET-1 capital at 9.61 per cent, without taking into account the infusion of additional capital.
LVB is the second private sector bank, after YES Bank, which ran into rough weather this calendar year. In March, capital-starved YES Bank was placed under moratorium. The government rescued YES Bank by asking state-run State Bank of India to infuse Rs 7,250 crore and take a 45 per cent stake in the bank.
Employees and depositors of LVB will be protected. But, 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 (LVB), stand written off.