Lakshmi Vilas Bank Under RBI Moratorium, To Be Merged With DBS India

Lakshmi Vilas Bank placed under moratorium, RBI limits deposit withdrawals to Rs 25,000.

Lakshmi Vilas Bank, Mulund branch. (Source: BloombergQuint)
Lakshmi Vilas Bank, Mulund branch. (Source: BloombergQuint)

Lakshmi Vilas Bank Ltd. will be amalgamated with DBS Bank India Ltd., said a statement by the Reserve Bank of India moments after it announced that the former has been placed under moratorium.

RBI has placed the private lender under moratorium for 30 days, according to statements from the regulator and the government on Tuesday. The regulator also capped deposit withdrawals by customers at Rs 25,000.

The lender has seen a steady decline in its financials with it incurring losses over the last three years, according to the RBI. “In absence of any viable strategic plan, declining advances and mounting non-performing assets, 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,” the RBI said in the statement.

In the quarter-ended September, Lakshmi Vilas Bank reported a net loss of Rs 397 and a gross NPA ratio of 24.45%. Both advances and deposits saw a double-digit decline. The Bank’s capital adequacy ratio continued to remain under pressure at -2.85% compared with 5.56% a year ago. Tier-I capital ratio stood at -4.85%.

Lakshmi Vilas Bank: The Unravelling Of A 93-Year-Old Lender

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

Lakshmi Vilas Bank was placed under the prompt corrective action framework of the RBI in September 2019. According to the regulator, it has been in continuous conversations with the bank’s management on its deteriorating capital position. While the management indicated that it was in discussions with certain investors, no concrete plan was submitted.

In October, non-bank lender Clix Capital submitted a non-binding offer for Lakshmi Vilas Bank. Since then, the two entities have been in negotiations without a final plan. While announcing the July-September quarter results, Lakshmi Vilas Bank said the discussions had reached advanced stages.

However, in an interview to The Economic Times on Nov. 12, Pramod Bhasin, co-founder of Clix Capital, said the lender would be willing to walk away from the deal if any further delays take place.

Meanwhile, RBI has assured customers of Lakshmi Vilas Bank that their interests will be “fully protected” and that there was no need to panic.

In terms of the provisions of the Banking Regulation Act, the Reserve Bank has drawn up a scheme for the bank’s amalgamation with another banking company. With the approval of the Central Government, the Reserve Bank will endeavour to put the Scheme in place well before the expiry of the moratorium and thereby ensure that the depositors are not put to undue hardship or inconvenience for a period of time longer than what is absolutely necessary.
RBI Statement
Lakshmi Vilas Bank: A Stitch In Time

Merger With DBS India

The RBI has also issued a draft scheme of amalgamation involving a merger of Lakshmi Vilas Bank with DBS Bank India.

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 Limited and has the advantage of a strong parentage, the RBI statement said. DBIL was issued a banking license on Oct. 4, 2018.

As per the RBI statement...

  • DBIL has a healthy balance sheet, with strong capital support.
  • As on Jun. 30, 2020, its total Regulatory Capital was Rs 7,109 crore (against capital of Rs 7,023 crore as on March 31, 2020).
  • As on Jun. 30, 2020, its GNPAs and NNPAs were low at 2.7% and 0.5% respectively.
  • Its 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%.
Although the DBIL is well capitalised, it will bring in additional capital of ₹2,500 crore upfront, to support credit growth of the merged entity. Owing to 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.
RBI Statement

As per the draft scheme of amalgamation proposed by the RBI, on and from the appointed date when the merger becomes effective, the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of Lakshmi Vilas Bank shall be written off.

In case of any debentures, bonds, or any other investments, DBS Bank India would have to pay creditors out of its own accounts, the scheme proposes.

Lakshmi Vilas Bank’s Shareholders To Get Nothing As RBI Proposes Merger With DBS Bank India