LVB to become DBS Bank India from Nov 27; Rs 25,000 withdrawal restriction to go

Crisis-hit Lakshmi Vilas Bank (LVB) will merge into the Indian arm of Singapore-based DBS Bank on Friday, leading to removal of all restrictions, including withdrawal cap of Rs 25,000, which the RBI had placed on the lender earlier this month.

The RBI notified the effective date of merger soon after the Union Cabinet headed by Prime Minister Narendra Modi approved the Scheme of Amalgamation of LVB with DBS Bank India Ltd (DBIL).

All the branches of LVB will function as branches of DBIL with effect from November 27, the Reserve Bank of India (RBI) said in a statement.

"Customers, including depositors of the Lakshmi Vilas Bank Ltd will be able to operate their accounts as customers of DBS Bank India Ltd (DBIL) with effect from November 27, 2020.

“Consequently the moratorium on the Lakshmi Vilas Bank Ltd. will cease to be operative from that date," it said.

DBIL is making necessary arrangements to ensure that service, as usual, is provided to customers of LVB, the central bank added.

The RBI had superseded LVB's board on November 17 after the private sector lender was placed under a moratorium.

Meanwhile, the government issued a gazette notification which notified the Lakshmi Vilas Bank Limited (Amalgamation with DBS Bank India Limited) Scheme, 2020.

All employees of LVB shall continue in service and be deemed to have been appointed at the same remuneration and on the same terms and conditions of service as were applicable immediately before the close of business on November 17, 2020, the gazette notification issued by the Department of Financial Services said.

Earlier in the day, the Union Cabinet approved the merger of LVB with DBIL, providing comfort to 20 lakh customers of the bank which was put under the moratorium.

DBIL, a banking company licensed by RBI and operating in India through a wholly-owned subsidiary model, had a total regulatory capital of Rs 7,109 crore as of June 2020.

The parent company DBS, headquartered and listed in Singapore, is a leading financial services group in Asia with presence in 18 markets.

Although DBIL is well capitalised, it will bring in additional capital of Rs 2,500 crore upfront to support credit growth of the merged entity.

The government had earlier on November 17, on the advice of the RBI, imposed a 30-day moratorium on crisis-ridden LVB, 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.

The combined balance sheet of DBIL would remain healthy even after amalgamation and its branches would increase to 600, a government release said on Wednesday.

Started by a group of seven businessmen of Karur in Tamil Nadu under the leadership of V S N Ramalinga Chettiar in 1926, LVB has 566 branches and 918 ATMs spread across 19 states and one union territory.

"The speedy amalgamation and resolution of the stress in LVB is in line with the government's commitment to a clean banking system while protecting the interests of depositors and the public as well as the financial system," the release said.

LVB is the second private sector bank after Yes Bank which ran into rough weather during this year.

In March, capital-starved Yes Bank was placed under a moratorium.

The government rescued Yes Bank by asking state-run State Bank of India (SBI) to infuse Rs 7,250 crore and take 45 per cent stake in the bank.

LVB's troubles started after it shifted its focus to lend to large businesses from SMEs.

With soaring NPAs, the bank was put under the Prompt Corrective Action framework of the RBI in September 2019.

The lender had sought the RBI's nod to amalgamate itself with Indiabulls Housing Finance and Indiabulls Commercial Credit in May 2019 to meet its capital requirements.

However, the deal could not get regulatory approval because of the RBI's aversion to let realty-focused entities into commercial banking.

On June 15, 2020, LVB had signed a preliminary, non-binding letter of intent with Clix Capital Services and Clix Finance India for a possible amalgamation with the Clix Group.

LVB posted a net loss of Rs 836.04 crore in the year to March 2020. The bank had recorded a net loss of Rs 396.99 crore during the second quarter ended September of this fiscal, which widened from Rs 357.17 crore in the same quarter a year ago.