The Reserve Bank of India (RBI) on Tuesday proposed a draft scheme to Lakshmi Vilas Bank with DBS Bank India Ltd, a wholly-owned subsidiary of DBS Bank Ltd (DBIL), Singapore. The decision came soon after it had imposed a one-month moratorium on the private lender and capped deposit withdrawals at Rs. 25,000.
The RBI has also placed the Lakshmi Vilas Bank under moratorium for 30 days and superseded its Board owing to serious deterioration in the lender’s financial position.
According to the RBI, DBIL, a wholly owned subsidiary of DBS Bank Ltd, Singapore (DBS), which is a subsidiary of Asia's leading financial services group, DBS Group Holdings Limited, has the advantage of a strong parentage. The apex bank said DBS Bank India has a healthy balance sheet, with strong capital support.
"DBIL has a healthy balance sheet, with strong capital support. As on June 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 June 30, 2020, its GNPAs and NNPAs were low at 2.7 percent and 0.5 percent respectively; Capital to Risk Weighted Assets Ratio (CRAR) was comfortable at 15.99 percent (against requirement of 9 percent); and Common Equity Tier-1 (CET-1) capital at 12.84 percent was well above the requirement of 5.5 percent," the RBI statement read.
"The rapidly deteriorating financial position of Lakshmi Vilas Bank relating to liquidity, capital and other critical parameters, and the absence of any credible plan for infusion of capital has necessitated Reserve Bank of India to take immediate action in public interest and particularly in the interest of the depositors," RBI said.
The Reserve Bank has also invited suggestions and objections, if any, from members, depositors and other creditors of transferor bank (LVB) and transferee bank (DBIL), on the draft scheme, which may be sent to the address mentioned in the "Notice". The draft scheme has also been sent to transferor bank and transferee bank for their suggestions and objections. The suggestions and objections will be received by Reserve Bank up to 5 pm on November 20, 2020.
Although the DBS Bank India is well capitalised, it will bring in additional capital of Rs 2,500 crore upfront, to support credit growth of the merged entity.
Owing to comfortable level of capital, the combined balance sheet of DBS Bank India would remain healthy after the proposed amalgamation, with CRAR at 12.51 per cent and CET-1 capital at 9.61 per cent, without taking into account the infusion of additional capital.
The Lakshmi Vilas Bank Ltd. has been placed under an order of moratorium on November 17, which will be effective upto December 16.
(With inputs from agencies)