At last, capital-starved Lakshmi Vilas Bank finds a ‘Safe Harbour’

RBI proposes LVB-DBS Bank merger; Lakshmi Vilas under 1-month moratorium 

MUMBAI/November 17-2020: After shooting down the merger plan of the capital-depleted Lakshmi Vilas Bank (LVB) with Indiabulls Housing Finance Ltd more than a year ago, the Reserve Bank of India (RBI) has now found DBS Bank’s India arm as the right suitor for LVB, even as another NBFC, Clix Group, has been courting the beleaguered bank for some time now.

RBI today announced the merger of LVB with the wholly-owned subsidiary of DBS Bank in India, a surprise move, which was preceded by the imposition of a one-month moratorium on the private sector bank with a capping of deposit withdrawal at Rs25,000.

Third moratorium in recent past

LVB is the third bank after Punjab and& Maharashtra Co-operative (PMC) Bank and Yes Bank that had gone under a moratorium in the recent past.

The ‘white knight’, DBS Bank India Ltd (DBIL) that came through RBI, is a wholly owned subsidiary of DBS Bank Ltd, a Singapore bank, which in turn is a subsidiary of Asia’s leading financial services group, DBS Group Holdings Ltd.

Capital starved bank

LVB has been literally struggling to keep its head above water with the capital adequacy ratio (CAR) having fallen to -2.85, very rare for a bank in India.

The bank that had been under RBI’s prompt corrective action (PCA) since September 2019, has last month received an indicative non-binding offer from Clix Group for merger, which the market believed would end up on a positive note.

May trigger more mergers

According to banking circles, the LVB-DBS Bank merger could trigger more mergers in the market, especially in South India, after the moratorium on loan repayment in the wake of COVID 19, have likely expanded their NPA books.

The chief executive of CSB Bank, CVR Rajendran, had some time back indicated his group’s desire to take over banks if there is right opportunity.

CSB Bank that is backed by the financially strong Fairfax Group is said to be willing to throw its hat in the ring when the PSU banks come up for sale.

There are a few private sector banks that are weak either on the capital front or on the management side. It was last month, the Thrissur-based, Dhanlaxmi Bank, saw its Managing Director and CEO, Sunil Gurbaxani, being voted out by the bank’s shareholders.

Dhanlaxmi Bank was also kept under RBI’s prompt corrective action (PCA) for some time, until February last year.

DBIL to bring fresh capital

DBIL has been issued RBI’s banking licence on October 4, 2018, and as on June 30, 2020, the bank enjoyed healthy capital adequacy ratio (CAR) of close to 16 per cent and a regulatory capital of Rs7,108 crore.

“Although DBIL is well-capitalised, it will bring in additional capital of Rs2,500 crore upfront, to support credit growth of the merged entity,” RBI said, adding that the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with CRAR at 12.51 per cent, even sans the additional capital.

Lakshmi Vilas Bank reported a net loss of Rs397 crore in the September quarter, compared with a year-earlier loss of Rs357 crore.

“The financial position of LVB has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth,” RBI had said.

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