RBI likely to write off tier-2 bonds amounting to Rs 320 crore of LVB

After writing off the entire equity share capital of Lakshmi Vilas Bank (LVB) as part of the scheme of amalgamation with DBS Bank India, the Reserve Bank of India (RBI) has prescribed the bank to also write off tier-2 bonds worth around Rs 320 crore.

“The Reserve Bank of India, vide their letter dated 26th November 2020 has advised the need to fully write-down the Series VIII, Series IX and Series X Basel-III complaint Tier-2 Bonds before the amalgamation comes into effect from the appointed date, 27th November 2020,” read an exchange filing.


The letter from the RBI to LVB said, “Given that Section 45 of the Banking Regulation Act, 1949 has been invoked and the scheme has been notified, the bank is deemed to be non-viable or approaching non-viability and accordingly, the triggers for a write-down of Basel III tier 2 bonds issued by the bank has been triggered. In light of the above provisions, such Basel III tier 2 bonds would need to be fully written down before the amalgamation of the bank comes into effect.”

Moneycontrol had predicted this RBI move on Thursday, citing information from government sources aware of the matter. Further specified, this may invite legal action from the tier-2 bondholders of LVB if this decision is implemented. Promoter group entities have already approached the Bombay High Court and involved the RBI, the government, and DBS Bank, challenging the final scheme of amalgamation, though, the plea was turned down.

Earlier in the year, Yes Bank’s AT1 bonds amounting to Rs 8400 crore were written down to zero as part of a government-approved scheme to revive the struggling private sector lender. This move pushed many investors to opt for legal recourse at various high courts. However, in the case of Yes Bank, unlike LVB, the equity share capital was not included and an SBI led consortium invested funds to rescue the bank.