Lakshmi Vilas Bank Ltd will start normal operations as DBS Bank India Ltd from Friday, with the government on Wednesday approving a scheme for amalgamation proposed by the Reserve Bank of India (RBI) for the lender. The RBI said the moratorium imposed on Lakshmi Vilas Bank Ltd will be lifted on November 27, resulting in depositors being able to withdraw their funds without any limits.
“All the branches of the Lakshmi Vilas Bank will function as branches of DBS Bank India with effect from this date. Customers, including depositors of LVB will be able to operate their accounts as customers of DBS Bank India with effect from November 27,” the RBI said.
The government had earlier on November 17, on the advice of the RBI, imposed a 30-day moratorium on the crisis-ridden LVB restricting cash withdrawal at Rs 25,000 per depositor. However, the final scheme announced on Wednesday hasn’t offered any bailout for equity shareholders whose shares have been written off.
The Union Cabinet, at its meeting Wednesday, approved the Scheme of Amalgamation of Lakshmi Vilas Bank Limited with DBS Bank India Limited. On and from the appointed date of November 27, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the shares or securities premium account of Lakshmi Vilas Bank Ltd, will be written off. Its shares or debentures listed in any stock exchange shall stand delisted — effectively wiping out equity shareholders entirely.
“The 20 lakh depositors and Rs 20,000 crore deposits are now fully secured. They need not worry. They should not rush, their deposits are in the best hand,” Union minister Prakash Javadekar said while briefing about Cabinet decisions. DBIL, a wholly-owned subsidiary of Singapore-based DBS Bank Ltd, had a total regulatory capital of Rs 7,109 crore as of June 2020 and it will bring in additional capital of Rs 2,500 crore into the merged entity.
The minister further said that those responsible for deteriorating financial health of the LVB would be penalised. “…two more decisions have been taken that the board which has been removed, the liability will be fixed. Those who have made mistakes, will be punished. There will be improvement in overall oversight also so as not to repeat such bank deals in future. This is one of the big efforts of cleaning up the banking system,” he said, as per a PTI report.
The terms of the amalgamation of Lakshmi Vilas Bank (LVB) with DBS Bank have upset stock investors. The bank had a market capitalisation of nearly Rs 500 crore till Tuesday.
In a gazette notification, the Ministry of Finance said, “On and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the shares or securities premium account of the transferor bank, shall stand written off.”
“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,” the notification said.
The RBI had earlier placed in public domain a draft scheme of amalgamation of LVB with DBIL, which is operating in India through wholly-owned subsidiary model. The RBI had appointed TN Manoharan, former non-executive chairman of Canara Bank, as administrator of LVB.
LVB’s network is focused in south India, with three-quarters of its branches located in three states — Tamil Nadu, Andhra Pradesh and Karnataka. Financial position of Chennai-based Lakshmi Vilas Bank, which has a network of 563 branches and deposits of Rs 20,973 crore, has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net worth.
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