On Wednesday as the Union Cabinet approved the amalgamation of ailing Lakshmi Vilas Bank with DBS Bank India, curtains fell on one of the oldest private sector lenders in south India.
Lakshmi Vilas Bank was founded in 1926 in Karur, Tamil Nadu, under the leadership of V.S.N. Ramalinga Chettiar to fund the small and medium businesses around the region. Lakshmi Vilas Bank had been struggling amid mounting losses, rising bad loans and depleting capital in the last few quarters. Eventually, it fell six short of its century.
Lakshmi Vilas Bank had tried to save itself. Last year, it looked to stitch a merger with Indiabulls Housing Finance. But that plan was rejected by the Reserve Bank of India. Earlier this year, it initiated merger talks with Clix Capital. But those discussions too hit a roadblock. Having seen enough, the central bank stepped in and superseded the board of Lakshmi Vilas Bank on November 17. A moratorium was imposed and withdrawals were capped at Rs 25,000 per depositor.
Simultaneously, RBI also proposed Lakshmi Vilas Bank’s merger with DBS Bank India, a wholly owned subsidiary of DBS, Singapore’s largest lender.
With the government clearing the RBI proposal, Lakshmi Vilas Bank is set to fade into the sunset on Thursday evening. From Friday, November 27, Lakshmi Vilas Bank will cease to exist and all its branches will start functioning as the branches of DBS Bank India, with the amalgamation coming into force from this date.
Good news for LVB depositors
Even as it is the end of Lakshmi Vilas Bank, it is good news for depositors and the bank’s employees. As Union minister Prakash Javadekar said on Wednesday, the future of 20 lakh depositors and deposits worth Rs 20,000 crore will be fully secured now in the hands of a new lender, which has a strong balance sheet.
DBS Bank India had only 33 branches, compared with 563 branches of Lakshmi Vilas Bank. The merger will not just protect the employment of the Lakshmi Vilas Bank employees, post-merger, DBS Bank India’s branch network will be more than all other foreign banks’ branches in India put together.
“All the employees of the transferor bank shall continue in service and be deemed to have been appointed in the transferee bank at the same remuneration and on the same terms and conditions of service,” the scheme of amalgamation said.
When the RBI took over Lakshmi Vilas Bank on November 17, a moratorium had been imposed till December 16, with the central bank assuring depositors of the bank that their interests will be fully protected and the scheme of amalgamation will be put into place well before the expiry of the moratorium period. With the merger of Lakshmi Vilas Bank with DBS, the moratorium will now be lifted.
“Customers, including depositors of the Lakshmi Vilas Bank, will be able to operate their accounts as customers of DBS Bank India with effect from November 27, 2020. Consequently, the moratorium on the Lakshmi Vilas Bank will cease to be operative from that date. DBS Bank India is making necessary arrangements to ensure that service, as usual, is provided to the customers of the Lakshmi Vilas Bank,” RBI said in a statement.
Bad news for shareholders
The customers and depositors will certainly heave a sigh of relief that their ordeal didn’t last long. However, Lakshmi Vilas Bank’s shareholders have paid the price as the entire paid-up share capital will be written off, as per the scheme of amalgamation.
Furthermore, “on and from the appointed date, the transferor bank shall cease to exist by operation of this scheme, and its shares or debentures listed in any stock exchange shall stand delisted without any further action from the transferor bank, transferee bank or order from any authority”.
Lakshmi Vilas Bank shares had hit a 52-week high at the end of June, as investors lapped up shares hoping that a turnaround was around the corner. However, offered nothing in the RBI’s amalgamation scheme, shareholders rushed to offload the stock at whatever price. Since the moratorium was announced, Lakshmi Vilas Bank’s share price more than halved. On Wednesday, which turned out to be the last day of trading, the stock ended at Rs 7.65, up 4.8 per cent.