Laxmi Vilas Bank Rescue Gets Underway With Withdrawal Cap, Merger Plan

The RBI has proposed to amalgamate LVB with DBS Bank India, a subsidiary of DBS Bank
The RBI has proposed to amalgamate LVB with DBS Bank India, a subsidiary of DBS Bank
  1. The government however made a provision for depositors to withdraw more than Rs 25,000 with permission from the RBI for medical treatment, higher education and marriage expenses.
  2. The RBI said that it had to apply to the government for imposing a moratorium under Section 45 of the Banking Regulation Act, 1949, in order to protect the interest of depositors and ensure financial and banking stability.
  3. The RBI also proposed a scheme of amalgamation of Lakshmi Vilas Bank with DBS Bank India, which is a wholly-owned subsidiary of DBS Bank. Under the draft scheme of amalgamation, the entire share capital and reserves and surplus will be written off. The central bank will take a final call on merger before the end of the moratorium period.
  4. The banking regulator superseded the board of directors of LVB for 30 days and appointed TN Manoharan, former non-executive chairman of Canara Bank, as the administrator. In September, the central bank had appointed a three-member committee under banker Meeta Makhan to run the cash-strapped private sector lender, after its shareholders voted out seven of its directors.
  5. Lakshmi Vilas Bank, struggling with bad loans and governance issues, has been scrambling to find a buyer for the past one year. Lakshmi Vilas Bank failed to get approval from the Reserve Bank of India late last year to merge with shadow lender Indiabulls Housing Finance. It subsequent discussions with Clix Capital, part of a company owned by Mumbai-based private equity firm AION Capital, also did not come through.
  6. Last month, Laksmi Vilas Bank founder KR Pradeep had told news agency Bloomberg that there was no liquidity problem, and the bank had a liquidity coverage ratio of 260 per cent as against the required 80 per cent.
  7. LVB's capital adequacy ratio stood at 3.46 per cent at the end of December and percentage of gross bad loans to total assets had inched up to 23.27 per cent, the bank had said in its quarterly results released in February.
  8. The RBI has resorted to forced mergers in the past. The central bank had announced a scheme of amalgamation for IDBI-United Western merger in September 2006 and the merger of Global Trust Bank with Oriental Bank of Commerce in the year 2004.
  9. This is, however, the first time the central bank has tasked a bank with a foreign parent to revive an ailing private lender.
  10. Lakshmi Vilas Bank shares remained frozen at the lower circuit limit of 20 per cent at Rs 12.40 on the BSE in a subdued market, after the developments.