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LVB to merge with DBS Bank India

Lakshmi Vilas bank will be amalgamated with DBS Bank India, the Reserve Bank of India said on Tuesday while announcing a Draft Scheme of Amalgamation.

Earlier the Centre placed the capital-starved bank under a one-month moratorium with effect from 6 PM on Tuesday, imposing a withdrawal limit of Rs. 25,000 on depositors.

According to the banking regulator, the private sector lender has seen a steady decline in its financials with it incurring losses over the last three years.

“In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses. Further, the bank is also experiencing continuous withdrawal of deposits and low levels of liquidity. It has also experienced serious governance issues and practices in the recent years which have led to deterioration in its performance,” the central bank said while announcing the imposition of moratorium.

This is the third such instance in recent months by the RBI. In March, it had placed Yes Bank under moratorium for two weeks. Earlier PMC Bank had been put under moratorium.

The bank was placed under the Prompt Corrective Action (PCA) framework by RBI in September 2019 considering the breach of PCA thresholds as on March 31, 2019.

Announcing the draft scheme of amalgamation, the Central bank said, DBS Bank India (DBIL), a wholly owned subsidiary of DBS Bank Ltd, Singapore (“DBS”), which in turn is a subsidiary of Asia’s leading financial services group, DBS Group Holdings Limited and has the advantage of a strong parentage. 

“DBIL has a healthy balance sheet, with strong capital support. As on June 30, 2020, its total Regulatory Capital was ₹7,109 crore (against Capital of ₹7,023 crore as on March 31, 2020). As on June 30, 2020, its GNPAs and NNPAs were low at 2.7% and 0.5% respectively; Capital to Risk Weighted Assets Ratio (CRAR) was comfortable at 15.99% (against requirement of 9%); and Common Equity Tier-1 (CET-1) capital at 12.84% was well above the requirement of 5.5%,” the RBI said. 

“Although the DBIL is well capitalised, it will bring in additional capital of ₹2500 crore upfront, to support credit growth of the merged entity. Owing to a comfortable level of capital, the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with CRAR at 12.51% and CET-1 capital at 9.61%, without taking into account the infusion of additional capital,” it added.

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