RBI proposes to merge Lakshmi Vilas Bank with DBS, announces draft scheme

RBI stated DBIL will bring in further capital of ₹2,500 crore upfront, to help credit development 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%, the RBI said.

“Owing to comfortable level of capital, the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with CRAR at 12.51% and CET-1 capital at 9.61%, without taking into account the infusion of additional capital,” RBI said.

“The Reserve Bank invites suggestions and objections, if any, from members,depositors and other creditors of transferor bank (LVB) and transferee bank (DBIL), on the draft scheme, which can be sent to the deal with mentioned in the “Notice”. The draft scheme has additionally been despatched to transferor bank and transferee bank for their options and objections. The options and objections might be acquired by Reserve Bank as much as 5 PM on 20 November, 2020. The Reserve Bank will take a final view thereafter, the RBI stated in its notice.

LVB earlier reported widening of its net loss at ₹397 crore within the second quarter ended September 2020 because of rise in bad loans and provisions. On September 25, the shareholders of the bank had voted out seven members from the board, together with the then MD and CEO S Sundar. The RBI on 27 September appointed the CoD composed of three independent directors Meeta Makhan, Shakti Sinha, and Satish Kumar Kalra, being headed by Meeta Makhan.

“The financial position of Lakshmi Vilas Bank Ltd. (the financial institution) has undergone a gradual 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 anticipated to proceed,” the central bank said.

LVB has been put under Reserve Bank’s Prompt Corrective Action (PCA) framework since September 2019.

Source: A-N