Lakshmi Vilas Bank merges with DBS India, RBI sets clear clauses

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The Central government via a Finance Ministry notification on November 25 has approved the final scheme of amalgamation between crisis-hit Lakshmi Vilas Bank (LVB) and DBS Bank India which shall  be implemented from November 27, 2020. Importantly, there is no change in the equity write-off clause specified in the earlier draft scheme of amalgamation, according to which the entire paid-up share capital of LVB would be written off post the transaction and DBS shall infuse fresh capital worth 2,500 crore rupees in LVB.

“The speedy amalgamation and resolution of the stress in LVB is in line with Government’s commitment to a clean banking system, while protecting the interests of depositors, public and financial system,” the union minister Prakash Javadekar said in a media briefing at the end of the cabinet meeting. With the merger, there will no further restrictions on the depositors regarding the withdrawal of their deposit, the minister added.

Clause 7 of the final scheme of amalgamation reads: “Rights and liabilities of members and creditors of transferor bank (1) On and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the shares or securities premium account of the transferor bank, shall stand written off.” The RBI had announced acceptance of suggestions and objections on the draft scheme of amalgamation after placing LVB under a moratorium on November 17.

“The rapidly deteriorating financial position of LVB relating to liquidity, capital and other critical parameters and the absence of any credible plan for infusion of capital has necessitated Reserve Bank to take immediate action in public interest and particularly in the interest of the depositors and accordingly, the Lakshmi Vilas Bank Limited was placed under moratorium by an order of the Government of India in the Ministry of Finance, Department of Financial Services vide number S.O.4127(E), dated the 17th November 2020 in the exercise of the powers conferred by sub-section (2) of section 45 of the Banking Regulation Act, 1949 (10 of 1949),” the Finance Ministry notification further reported.

Lakshmi Vilas Bank, struggling with bad loans and governance issues, has been desperately searching to find a buyer for the past one year. Lakshmi Vilas Bank failed to get approval from the Reserve Bank of India late last year to merge with shadow lender Indiabulls Housing Finance. Its subsequent discussions with Clix Capital, part of a company owned by Mumbai-based private equity firm AION Capital, also were unsuccessful. The Reserve Bank of India had, on November 17, proposed the merger of the 94-year-old lender with DBS India.

Union Minister Prakash Javadekar at the press conference post the Union Cabinet meeting today also commented “The board which has been removed – the liability will be fixed and those who have made mistakes will be punished and there will be an overall improvement on oversight.”