The cabinet on Wednesday approved the merger of Lakshmi Vilas Bank (LVB) with DBS India, which is the wholly-owned subsidiary of DBS Bank. "The speedy amalgamation and resolution of the stress in LVB is in line with government's commitment to a clean banking system, while protecting the interests of depositors, public and financial system," the union minister Prakash Javadekar said in a media briefing at the end of the cabinet meeting. With the merger, there will no further restrictions on the depositors regarding the withdrawal of their deposit, the minister added.
As part of the amalgamation plan, DBS India will infuse fresh capital of Rs 2,500 crore into LVB and the entire share capital and reserves and surplus will be written off.
The Reserve Bank of India had, on November 17, proposed the merger of the 94-year-old beleaguered lender with DBS India. On the same day, it had placed LVB under a moratorium for one month and capped withdrawals from its customers' accounts at Rs 25,000 a month. The Reserve Bank had also superseded the board of the LVB and appointed T N Manoharan, former non-executive chairman of Canara Bank, as administrator of the bank for 30 days.
The RBI has resorted to forced mergers in the past. The central bank had announced a scheme of amalgamation for IDBI-United Western merger in September 2006 and the merger of Global Trust Bank with Oriental Bank of Commerce in the year 2004. This is, however, the first time the central bank has tasked a bank with a foreign parent to revive an ailing private lender.
LVB is the second private sector bank to face problems this year. In March, Yes Bank was placed under a moratorium. The government then rescued Yes Bank by asking State Bank of India to infuse Rs 7,250 crore and take 45 per cent stake in it.
Lakshmi Vilas Bank, struggling with bad loans and governance issues, has been scrambling to find a buyer for the past one year. Lakshmi Vilas Bank failed to get approval from the Reserve Bank of India late last year to merge with shadow lender Indiabulls Housing Finance. Its subsequent discussions with Clix Capital, part of a company owned by Mumbai-based private equity firm AION Capital, also did not come through.
LVB's capital adequacy ratio stood at 3.46 per cent at the end of December and percentage of gross bad loans to total assets had inched up to 23.27 per cent, the bank had said in its quarterly results released in February.