Madras High Court Asks RBI To Rethink Writing Down Of Lakshmi Vilas Bank Shares

The Madras High Court on Friday directed the Reserve Bank of India to take a fresh decision on writing down shares and debentures of Lakshmi Vilas Bank Ltd., according to the court order reviewed by NDTV Profit.

The high court has asked the central bank to conduct a fresh valuation exercise for Lakshmi Vilas Bank and DBS Bank India's assets before amalgamation. The RBI has been given four months to conduct the revaluation exercise.

In November 2020, RBI had ordered amalgamation of Lakshmi Vilas Bank with DBS Bank India, where shares and Tier-II bonds of the private lender were written down to zero, citing negative net worth.

The court stated that the RBI could have determined the swap ratio, and comparative evaluation of share prices of both the banks should have been done.

If the comparative valuation of the shares of Lakshmi Vilas Bank and DBS Bank India would have been undertaken, then a decision could have been taken with certainty about the swap ratio or whether the value of the shares have become zero, the court said. It does not appear that all these aspects were considered, it said.

Further, deferred tax liability can be interpreted as an asset and also a liability. In this case, the tax liability of Lakshmi Vilas Bank in the future could not have been wiped out without making the provision of Rs 1,185 crore. If this amount was available with DBS Bank India to set off against its tax liabilities, but for this DTA, the net worth of Lakshmi Vilas Bank would be positive at Rs 486 crore, the court said.