(Bloomberg) -- Creditors of smaller Indian bank lenders may have reason to cheer the central bank's approach to the rescue of Lakshmi Vilas Bank Ltd., which contrasts with the bailout of a larger local bank earlier this year.
For one, the merger plan laid out by the Reserve Bank of India late Tuesday envisions the white knight -- DBS Group Holdings Ltd.'s India unit -- taking over the lender's debt. That's in part a consequence of a crucial difference in the proposed deal structure that contrasts with the rescue of Yes Bank Ltd. in March.
DBS's India unit will merge with Lakshmi Vilas, unlike in Yes Bank, where the rescue investors simply took financial stakes in the bank and pumped in capital, without actually combining entities and assuming their debt.
The plan also doesn't make an explicit provision for writing down any of the debt of Lakshmi Vilas before the merger -- unlike with Yes Bank, where the lender's Additional Tier 1 bonds were specifically written down.
Read more about the Yes Bank AT1 fallout here
Creditors may do well though to avoid reading too much into the new approach. Lakshmi Vilas is far smaller than Yes Bank, making it easier to digest. Finding a buyer willing to take the same creditor-friendly approach may be harder to replicate with larger lenders.
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