Cabinet nod to DBS Bank takeover of Lakshmi Vilas Bank; no curbs on cash withdrawal

Union Cabinet on Wednesday approved the merger of Lakshmi Vilas Bank with DBS Bank India. With this nod, there will be no further restrictions on withdrawal limits for depositors. The Centre has asked the RBI to take action against the people in management who drove the bank to brink of collapse, Union minister Prakash Javadekar said during a press briefing today. Lakshmi Vilas Bank is the second bank to be rescued by the government in 2020 after private lender Yes Bank.

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After the approval, Singapore-based DBS Group Holdings will now take over Lakshmi Vilas Bank. The deal also marks the first instance when a foreign entity was roped in to bail out a beleaguered bank. "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 and the public as well as the financial system," said Javadekar.

The amalgamation will come into force on November 27, 2020 and all the branches of the Lakshmi Vilas Bank will function as branches of DBS Bank India from this date. Consequently, customers, including depositors of the Lakshmi Vilas Bank will be able to operate their accounts as that of DBS Bank India with effect from November 27, 2020.

The RBI on November 17 had placed LVB under moratorium for 30 days. In parallel, the RBI superseded the Board of Directors of LVB and appointed an administrator to protect the depositors' interests. After inviting suggestions and objections from the public and stakeholders, the RBI prepared and provided a scheme for the bank's amalgamation. "With the approval of the scheme, LVB will be amalgamated with DBIL from the appointed date, and with this there will be no further restrictions on the depositors regarding withdrawal of their deposits," an official statement said.

While DBS Bank operates just 35 branches in 25 cities across India currently, it'll get a chunk of LVB branches at one go. After the merger, 566 bank branches and about 4,000 employees will come into DBS Bank's fold. The Singapore-based subsidiary of DBS Bank will pump in Rs 2,500 crore additional foreign capital to ramp up new working style at the acquired entity.

DBIL is a banking company licenced by the RBI and operating in India through a wholly-owned subsidiary model. The bank has a strong balance-sheet, with strong capital support. It has also the advantage of a strong parentage of DBS, a leading financial services group in Asia, with presence in 18 markets.  "The combined balance-sheet of DBIL would remain healthy even after amalgamation and its branches would increase to 600," the statement added.

Also read: 566 new branches, 4,000 employees: What will DBS Bank get from Lakshmi Vilas Bank?

The financial position of Lakshmi Vilas Bank had undergone a steady decline over the last three years. Its capital adequacy ratio fell to 0.17 per cent in June 2020 against the minimum 9 per cent. The bank had Rs 13,827 crore in outstanding loans and deposits worth Rs 21,443 crore at the end of FY20.

Besides, the Union Cabinet also approved equity infusion worth Rs 6,000 crore in NIIF Debt Platform. This equity infusion is sponsored by National Investment and Infrastructure Fund, comprising Aseem Infrastructure Finance Limited and NIIF Infrastructure Finance Limited, Javadekar said. In a separate decision, the Cabinet also approved FDI worth Rs 2,480.92 crore in ATC Telecom Infrastructure Private Limited by ATC Asia Pacific Pte Ltd.

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