Reserve Bank of India has shared draft scheme of amalgamation to effectuate merger of Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd (DBIL). The announcement was made soon after holding the state owned LVB under one-month moratorium.
While unveiling the proposal for merger, the central bank said that the amalgamation of LVB with DBIL will bring in additional capital of Rs 2,500 crore upfront and support credit growth of the merged entity.
Earlier yesterday, the Finance Ministry had issued order for placement of moratorium till December 16, 2020 for cash strapped LVB in response to application made by the Reserve Bank of India. Following the news, RBI announced draft proposal of merging LVB with DBS Bank.
In effect, the depositors of the bank will not be able to withdraw more than Rs 25,000 without prior approval from the RBI. The central bank has superseded the board of directors of LVB for 30 days. TN Manoharan, former non-executive chairman of Canara Bank is appointed as the administrator for the bank.
The Chennai based Lakshmi Vilas Bank had deposits of Rs 20,973 crore and a loan book of Rs 13,505 crore. In the second quarter of this FY, LVB’s gross non-performing assets (GNPAs) were alarming at 24.45 per cent, along with net NPAs of 7.01 per cent.
“The financial position of Lakshmi Vilas Bank Ltd (the bank) has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth. In the absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue,” said RBI in a media release.
Furthermore, the bank is experiencing a continuous withdrawal of deposits and low levels of liquidity, added RBI. The central bank also highlighted “serious governance issues” and other causes of deterioration the lender’s performance.”
In the order, the RBI has superseded the board of the bank and exercised sub-section (1) of Section 36 A C A of the Banking Regulation Act 1949 for a period of 30 days.
RBI has also invited suggestions and objections from members, depositors and other creditors of LVB and DBIL on the draft scheme up till 5.00 PM, November 20, 2020.
As per the draft scheme of amalgamation, the entire paid-up share capital and reserves and surplus, including share/securities premium account of the LVB shall stand written off. Thus its entity cease to exist and its shares or debentures will stand de-listed on stock exchanges, noted RBI.
In one year’s time, it is for the third time that the RBI has seized control of a bank’s operations. Clearly it highlights troubles within Indian banking. The other two banks were Punjab and Maharashtra Co-operative (PMC) Bank and Yes Bank Ltd. Though the concerns of PMC stakeholders, depositors and investors haven’t been resolved yet, the issues with YES Bank were resolved within three months.
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