To meet its short-term funding needs, Reserve Bank of India (RBI) has extended nearly Rs 7,000 crore in special liquidity assistance to DBS Bank India. This was done after the acquisition of the Lakshmi Vilas Bank (LVB) with the DBS, The Economic Times reported on Monday.
The funds will be used to manage the mismatch arising out of LVB’s assets and liabilities. LVB customers are withdrawing funds or are shifting from short to long-term deposits. This may have impacted the bank’s liquidity coverage ratio and forced DBS to reach out to the RBI, says a person familiar with the development to the newspaper.
The person added by saying that the short-term fundraising may be charged with interest rates close to or linked to the repo rate, at which the RBI usually lends to banks. This is because the need for this funding may have arisen at DBS due to the acquisition, and not because of its own financial position.
However, DBS has said there has been “no unusual flight of deposits” from erstwhile LVB. It is availing liquidity from the central bank under the window that’s available to the banking industry.