Acting on the recommendation of the Reserve Bank of India to rescue capital-starved Lakshmi Vilas Bank Limited (LVB), the Union cabinet on Wednesday approved its amalgamation with the DBS Bank India Limited (DBIL). The government said this will protect the interests of over 20 lakh investors and 4,000 employees whose future was under cloud after the LVB suffered mismanagement.
Giving details of the cabinet decision, Union minister Prakash Javadekar said, “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 and the public as well as the financial system.” He said the cabinet has also asked the RBI to take action against those who mismanaged the bank.
On November 17, to protect depositors' interest and in the interest of financial and banking stability, on the RBI's application under section 45 of the Banking Regulation Act, 1949, the LVB had been placed under moratorium for a period of 30 days. In parallel, the RBI, in consultation with the government, superseded the Board of Directors of the LVB and appointed an administrator to protect the depositors' interest.
The bank was suffering from bad loans, mismanagement and value erosion. In order to overcome its trouble, the LVB tried for a merger with India Bulls and Clix Capital, but the deals could not materialise. The bank founded in 1926 has over 560 branches across 19 states.
“After inviting suggestions and objections from the public and stakeholders, the RBI prepared and provided a scheme for the bank's amalgamation for the government's sanction well in advance of end of the period of moratorium so that restrictions on withdrawal faced by the depositors are minimised.
With the approval of the scheme, the LVB will be amalgamated with the DBIL from the appointed date, and with this there will be no further restrictions on the depositors regarding withdrawal of their deposits,” the cabinet statement said.
The DBIL is a banking company licensed by the RBI and is operating in India through wholly owned subsidiary model. The DBIL has a strong balance-sheet, with strong capital support and it has the advantage of a strong parentage of DBS, a leading financial services group in Asia, with presence in 18 markets and headquartered and listed in Singapore. The combined balance-sheet of DBIL would remain healthy even after amalgamation and its branches would increase to 600, officials said.
DBIL will infuse fresh capital of Rs 2,500 crore into the LVB.