Merger of LVB with DBS Bank

BE/RBI/65/2020

• The Reserve Bank of India (RBI) on Tuesday the 17^th November 2020, placed Lakshmi Vilas Bank under one-month moratorium.
• The Moratorium comes into effect from 6 pm today (November 17) to December 16, 2020.
• During this 30-day period, cash withdrawal of up to Rs 25,000 will be allowed.
• Withdrawal of any amount more than Rs 25,000 will only be allowed in case of medical emergencies or any other unavoidable emergencies.
• The RBI said in the circular that the financial position of The Lakshmi Vilas Bank has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth.
• In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue.
• The bank-led efforts through market mechanisms have not fructified. As bank-led and market-led revival efforts are a preferred option over a regulatory resolution, the Reserve Bank had made all possible efforts to facilitate such a process and gave enough opportunities to the bank’s management to draw up a credible revival plan, or an amalgamation scheme, which did not materialise and in the meantime, the bank was facing regular outflow of liquidity.
• RBI further added that after taking into consideration these developments, they have come to the conclusion that in the absence of a credible revival plan, with a view to protect depositors’ interest and in the interest of financial and banking stability, there is no alternative but to apply to the Central Government for imposing a moratorium under section 45 of the Banking Regulation Act, 1949.
• Accordingly, after considering the Reserve Bank’s request, the Central Government has imposed moratorium for thirty days effective from 17^th November 2020.
• RBI assured depositors of the bank that their interest will be fully protected and that there is no need to panic. In terms of the provisions of the Banking Regulation Act, the Reserve Bank has drawn up a scheme for the bank’s amalgamation with another banking company. With the approval of the Central Government, RBI aims to put the Scheme in place well before the expiry of the moratorium.

MERGER WITH DBS BANK

• The Reserve Bank also unveiled a scheme to merge Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd. (DBIL).
• The decision came soon after it had imposed a one-month moratorium on the private lender and capped deposit withdrawals at ₹25,000.
• RBI said DBIL will bring in additional capital of ₹2,500 crore upfront, to support credit growth of the merged entity.
• DBIL is a wholly owned subsidiary of DBS Bank Ltd, Singapore (“DBS”), which in turn is a subsidiary of Asia’s leading financial services group, DBS Group Holdings Limited. DBIL has a healthy balance sheet, with strong capital support. As on 30 June, 2020, its total Regulatory Capital was ₹7,109 crore (against Capital of ₹7,023 crore as on March 31, 2020).
• As on June 30, 2020, its GNPAs and NNPAs were low at 2.7% and 0.5% respectively; Capital to Risk Weighted Assets Ratio (CRAR) was comfortable at 15.99% (against requirement of 9%); and Common Equity Tier-1 (CET-1) capital at 12.84% was well above the requirement of 5.5%.