With Lakshmi Vilas Bank’s efforts to raise capital reaching a dead-end, the Reserve Bank of India on Tuesday superseded the board of the loss-making lender, placed the bank under moratorium and announced a draft scheme for its amalgamation with DBS Bank India Ltd (DBIL).
According to the RBI, the LVB board has been superseded for 30 days owing to serious deterioration in its financial position.
According to the ‘order of moratorium’ issued by the Finance Ministry on an application by the RBI, deposit withdrawals have been capped at ₹25,000 per depositor during the moratorium period (up to December 16).
Per the RBI’s “draft scheme of amalgamation”, DBIL is a wholly-owned subsidiary of DBS Bank Ltd, Singapore, which in turn is a subsidiary of Asia’s leading financial services group, DBS Group Holdings Ltd, and has the advantage of a strong parentage. Although DBIL is well capitalised, it will bring in additional capital of ₹2,500-crore upfront to support credit growth of the merged entity, said the RBI.
Also read:
According to the RBI, the Karur-headquartered bank incurred a net loss of ₹836 crore and ₹112 crore for FY2019-20 and quarter ending June 30, 2020, respectively.
“The losses are expected to continue for other quarters of the FY 2020-21 also, as estimated by the RBI. As there is no likelihood of increase in fresh advances and slippages may continue, asset quality position is likely to deteriorate materially during FY 2020-21,” the RBI said.
This is the second time in the last eight months or so that the central bank has had to rescue a troubled private sector bank.
Also read:
In March 2020, eight banks and financial institutions, led by State Bank of India, had collectively invested ₹10,000 crore to bail out the then troubled YES Bank as part of a reconstruction scheme.
Revival will be in vain
Referring to LVB’s losses, bad loans, weak capital base and taking a holistic view of the position of the banking company, the RBI said it came to a considered view that any effort to revive the banking company will be in vain with the present board of directors in place, steering its affairs.
Also read:
“Therefore, to protect the interest of the depositors and to secure proper management of the banking company, Reserve Bank…hereby supersedes the board of directors of the banking company for a period of 30 days,” the central bank said.
As part of its efforts to shore up the weak capital base, LVB had signed a preliminary, non-binding letter of intent (LOI) with Clix Capital Services Pvt Ltd and Clix Finance India Pvt Ltd (collectively, the “Clix Group”) in June 2020 for the proposed amalgamation of Clix Group with the bank.
Underscoring that there is no likelihood of increase in fresh advances, possibility of slippages continuing and capital-to-risk weighted assets declining to (-)1.94 per cent (as on September-end 2020), the central bank said: “The banking company has so far failed to bring any firm proposal for infusion of fresh capital. Apart from this, the banking company has serious governance and management issues.”
The Reserve Bank has invited suggestions and objections, if any, from members, depositors and other creditors of transferor bank (LVB) and transferee bank (DBIL), on the draft scheme by November 20.