The union cabinet has approved the merger of the troubled private sector lender Lakshmi Vilas Bank (LVB) into DBS Bank India Ltd, wholly owned subsidiary of Singapore’s DBS Bank.
The Reserve Bank of India had placed LVB under a moratorium, capping withdrawals at Rs 25,000 per depositor. The central bank had also superseded the board as the bank’s financial condition had deteriorated and it had failed to secure the much needed funding.
Chennai-based LVB’s net loss had widened to Rs 397 crore in the July-September quarter, from a loss of Rs 357 crore a year ago. Its net NPAs stood at 7.01 per cent in September and deposits had fallen to Rs 20,973 crore at the end of September from Rs 27,864 crore a year ago. Its tier 1 capital ratio had also turned negative.
Briefing reporters on Wednesday, Union Minister Prakash Javadekar said that this decision to merge LVB into DBS Bank India would secure the future of LVB depositors as well as the employees of the bank.
“LVB will be amalgamated with DBS Bank India. With this, 20 lakh depositors and deposits worth Rs 20,000 crore are now fully secured. They need not worry, need not rush, their deposits are in best hands, which is a stable bank, a prosperous bank, which has international presence and a strong balance sheet. This deal will also protect the employement of 4,000 LVB employees,” Javadekar said.
As a part of the draft deal proposed by the RBI on November 17, DBS Bank India will bring in additional capital of Rs 2,500 crore upfront to support the credit growth of the merged entity. Without taking into account the additional capital, the combined balance sheet of DBS Bank India would remain healthy after the proposed amalgamation, with CRAR (capital to risk weighted assets ratio) at 12.51 per cent and CET-1 capital at 9.61 per cent, the central bank had pointed.
This will be the first such instance, where a dometic bank is being merged into a foreign lender. A big advantage for DBS Bank India will be LVB’s branch network.
Ratings agency Fitch noted that DBS established 21 new branches in India in 2019 for a total of 33, but the proposed transaction will add as many as 563 branches, a greater number than that of all other foreign banks in India put together. Almost, three-quarters of LVB branches are located in three states - Tamil Nadu, Andhra Pradesh and Karnataka.
“We regard LVB's branches as one of its most coveted residual assets for a foreign buyer and believe the ready-made platform that will enable deeper market penetration is the key draw for DBS,” it said.
LVB shares closed up near 5 per cent at Rs 7.65 on the BSE on Wednesday. The shares had been under sustained selling pressure since the RBI had proposed the merger because as per the draft proposal, on and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank, shall stand written off.