Lakshmi Vilas Bank Becomes DBS India; 94-Year Old Bank Part Of History Now

All the branches of LVB will function as branches of DBIL with effect from Nov.27, the RBI had said in a statement.

A branch of The Lakshmi Vilas Bank in Mumbai, India. (Photographer: Mahima Kapoor/BloombergQuint)
A branch of The Lakshmi Vilas Bank in Mumbai, India. (Photographer: Mahima Kapoor/BloombergQuint)

Tamil Nadu-based The Lakshmi Vilas Bank Ltd. with pre-independence lineage on Friday lost its identity after its merger with the Indian subsidiary of Singapore's DBS Bank.

The debt-ridden 94-year old old bank's fate was sealed with Union Cabinet headed by Prime Minister Narendra Modi approving Scheme of Amalagamation on Wednesday. The Reserve Bank of India had announced Nov. 27 as the effective date of merger for LVB with DBS Bank India Ltd.

All the branches of LVB will function as branches of DBIL with effect from Nov. 27, the RBI had said in a statement.

Lakshmi Vilas Bank-DBS Bank India Merger Effective From Nov. 27: RBI

Although depositers of the bank now have clarity, promoters and investors of the bank have been left high and dry. LVB was asked to write off Rs 318-crore Tier-II Basel III bonds by ahead of its merger with DBS Bank by RBI on Thursday citing Section 45 of the Banking Regulation Act, resulting in losses to the investors of these bonds.

Besides, the shares of the bank are going to be delisted as per the Scheme of Amalgamation -- Lakshmi Vilas Bank Ltd. (Amalgamation with DBS Bank India Ltd.) Scheme, 2020.

Many stakeholders including bank unions have raised questions on the manner in which the LVB was merged with subsidiary of a foreign bank, saying that RBI has gifted LVB for free.

Bank employees' union AIBEA has said that the Reserve Bank's culpability in the failure of the 94-year-old bank needs to be looked into and that the proposed merger of the lender with DBIL will provide a back-door entry for a foreign banking entity into the Indian market.

DBS Offered To Buy 50% Of Lakshmi Vilas Bank In 2018, But RBI Rejected, Says Promoter

In a letter to Finance Minister Nirmala Sitharaman on Wednesday, the All India Bank Employees Association said the approach of merger of the Tamil Nadu-based lender with Indian subsidiary of a Singapore-based bank is opposite to the policy of Aatmanirbhar Bharat professed by the government.

DBIL became lucky in the second attempt. In 2018, DBS had approached LVB to acquire about 50% of the stake in karur-based lender for a much higher valuation, Rs 100-Rs 150 per share.

LVB then had appointed JPMorgan to scout for investors for the bank. But, when the DBS approached the RBI with the proposal, it sought an exemption from the stake dilution norms The RBI didn't agree with the proposal and hence rejected it.

The RBI had superseded LVB's board on Nov. 17 after the private sector lender was placed under a 30-day moratorium restricting cash withdrawals at Rs 25,000 per depositor.

The RBI simultaneously placed in public domain a draft scheme of amalgamation of LVB with DBIL.

LVB-DBS Merger: Bombay High Court Denies Interim Relief To Lakshmi Vilas Bank Promoters

Started by a group of seven businessmen of Karur in Tamil Nadu under the leadership of VSN Ramalinga Chettiar in 1926, LVB has 566 branches and 973 ATMs spread across 19 states and Union Territories.

With non-performing assets soaring, the bank was put under the prompt corrective action framework of the RBI in September 2019.

LVB is the second private sector bank after Yes Bank that has run into rough weather this year.

The Lakshmi Vilas Bank Rescue Does Not Mark A Trend

In March, capital-starved Yes Bank was placed under a moratorium. The government rescued Yes Bank by asking State Bank of India to infuse Rs 7,250 crore and take 45% stake in the lender.