Lakshmi Vilas Bank and DBS Bank India Merger

Lakshmi Vilas Bank has been facing problems for more than three years. The financial position of the bank had undergone a steady decline in the last three years.The losses have been increasing. Non-performing assets (NPAs) and provisions have been increasing with gross NPA of ₹4,233.31 crores and ₹16,622 crores of advances and ₹20,973 crores of deposits at the end of September 2020 quarter. As a result the networth of the bank has been eroding. The tier I capital has slipped into negative to -0.88% and capital adequacy ratio has fallen to 1.12%.

All the efforts to stop losses and bring down NPA have not worked and the Reserve Bank of India don’t expect the situation to improve in near future without external support. As a result RBI has to put Lakshmi Vilas Bank on moratorium for one month and has announced a draft scheme of amalgamation with the DBS Bank India.

Lakshmi Vilas Bank is the third bank in one year that is being rescued by the RBI. Earlier RBI had to rescue Yes Bank and PMC Bank.However this time RBI has acted swiftly than waiting and lingering on. As per the draft scheme of the amalgamation, the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the bank shall be written off on and from the appointed date when the merger becomes effective. In case of any outstanding debentures, bonds, or any other investments, it will be the liabilities of the DBS Bank India to pay the creditors of its own account.

However the provision of the amalgamation scheme to write off the paid-up capital and reserves and surplus including share/securities premium account is being questioned by the stakeholders as well as from the different quarters resulting into RBI delaying the merger by one week. Rather the RBI should clarify the valuation process and key aspects of the amalgamation scheme.

Rajeev Upadhyay

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