Cabinet clears crisis-hit Lakshmi Vilas Bank's merger with DBS Bank
The Union Cabinet on Wednesday approved the amalgamation of the crisis-hit Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd (DBIL), the Indian arm of Singapore's DBS Bank. Earlier last week, the Reserve Bank of India (RBI) had proposed the merger of the 94-year-old LVB as it failed to raise capital to resolve its negative net worth and ongoing losses. Here are more details.
Cabinet approves merger; withdrawal restrictions lifted: Javadekar
Speaking at a press conference on Wednesday, Union Minister Prakash Javadekar said, "Union Cabinet approves the scheme of amalgamation of Lakshmi Vilas Bank with DBS Bank India Limited." Javadekar also declared that there will no longer be any restrictions on withdrawal by depositors. Earlier, the withdrawal limit had been capped at Rs. 25,000, starting November 17 as the bank was placed under a moratorium.
Government seeks action against those responsible for banks' deteriorating health
Javadekar said, "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 Minister added, "The government has asked the RBI to take action against people in the management who drive banks to the brink of collapse."
DBIL to infuse Rs. 2,500 crore into LVB
Last week, the RBI had placed in the public domain a proposal to merge LVB and DBIL. As part of the merger, the DBIL will infuse fresh capital of Rs. 2,500 crore. The RBI had superseded LVB's board, appointing TN Manoharan—former non-executive Chairperson of Canara Bank—as its administrator. The Ministry of Finance had also placed LVB on a 30-day moratorium on RBI's advice.
LVB incurring losses for past 10 quarters
The move comes as LVB had been scrambling to raise capital; it incurred losses for the past 10 quarters. In 2019, the RBI had rejected a proposal for its merger with shadow lender Indiabulls Housing Finance. The lender was reportedly in talks with Clix Capital for capital infusion and a possible merger. In September 2020, LVB's shareholders ousted seven directors.
Earlier this year, Yes Bank was hit by crisis
LVB is the second private sector bank to face problems this year. In March, Yes Bank was placed under a moratorium. The State Bank of India had infused Rs. 7,250 crore and taken 45% stake in it. The RBI has also resorted to forced mergers in the past—the IDBI-United Western merger in 2006, and the Global Trust Bank-Oriental Bank of Commerce merger in 2004.