Lakshmi Vilas Bank Moratorium + Merger with DBIL – Are Fixed Deposit Holders and Shareholders safe?
It was a story of rise and fall. Lakshmi Vilas Bank has been in trouble in the last few quarters as it was incurring losses. A couple of days back, RBI has imposed moratorium where deposit holders withdrawal limit was capped to Rs 25,000 per month. Soon after this, RBI has given draft approval for merger of Lakshmi Vilas Bank with DBIL (Subsidiary of DBS Bank, Singapore) now. There were dramatic events that are taking place now. If you are the shareholder of Lakshmi Vilas Bank, you might think whether you would get benefitted with this DBS merger. If you are FD investor, should you really worry about all these incidents happening now?
What really happened to Lakshmi Vilas Bank?
Lakshmi Vilas bank is 94 years old bank from Tamilnadu. This was started by a group to promote trade in western Tamilnadu. Lakshmi Vilas Bank has been incurring losses and bleeding for the past few quarters. Some of the institutions came forward to fund the troubled bank, but could not materialize.
The major trouble started where LVB has started promoting large loans and where it also stuck for Rs 700+ Crores which was given to Ranbaxy promoters.
Indiabulls and Clix Capital came forward to take over the troubled Lakshmi Vilas Bank. However RBI rejected Indiabulls and for Clix Capital, it got stuck due to valuation issues.
LVB saw a dramatic turn of events where its own shareholders voted against the appointment of seven of its independent directors, including the MD & CEO of the bank. This made the already deteriorating situation worse, given the bank’s already fragile financial state.
What is the RBI moratorium on LVB all about?
RBI has placed a moratorium on LVB now. LVB deposit holders cannot withdraw over Rs 25,000 per month. LVB cannot pay beyond Rs 25,000 to its creditors without approval from RBI.
What is this LVB-DBIL (Subsidiary of DBS, Singapore) merger news now?
After moratorium news, RBI has announced that it has approved draft merger of LVB with DBIL. DBIL is the wholly owned subsidiary of DBS, Singapore.
Combined balance sheet of DBIL and LVB is expected to remain healthy with Capital to risk ratio of 12.51% and Common Equity Tier 1 (CET-1) at 9.61% without any additional capital. With this merger, DBIL would bring Rs 2,500 Crores as additional capital to support credit growth of the merged entity.
Mergers that happened earlier
RBI now has given draft approval to merge troubled LVB with DBIL. Earlier, Global Trust Bank (GTB) was in trouble and was merged with Oriental Bank of Commerce. In recent past, Yes Bank was in trouble and SBI led consortium has rescued it.
RBI has superseded Lakshmi Vilas Bank Board – What does this mean?
When RBI supersedes bank board, it means it wants to take over the control and do a thorough investigation of bank activities. RBI has appointed Mr. TN Manoharan, former non-executive chairman of Canara Bank as the administrator for LVB now.
If I am the shareholder of LVB, are my investments safe now?
If you are the shareholder of LVB, you might think whether such amalgamation make your investments safe . LVB net worth is already eroded and shareholders would definitely lose out. As per the draft amalgamation scheme approved by RBI, entire Indian equity would be wiped off. On Wednesday, LVB shares are at 20% down (lower circuit hit). There is very little shareholders would get with this merger, but let us wait for further actions from DBIL. As of now one can consider the Indian shareholders current value to be zero.
If I am the Fixed Deposit holder in LVB, can I assume, I am safe now?
RBI has assured fixed deposit holders need not worry. If you have invested Rs 5 Lakhs or less, you don’t need to worry at all, irrespective of RBI announcements, as it is insured by deposit insurance. If you have invested beyond Rs 5 Lakhs, one may need to wait for some direction post amalgamation while we know it is not risky at this point of time.
Net Summary: DBIL + DBS Bank Singapore are biggest beneficiaries of this merger. LVB FD holders are safe. But current Indian shareholders are expected to loose their money.
The mystery still remains as to why RBI has rejected a merger with Indiabulls (an Indian company) and approved to merge with a DBIL (a subsidiary of a foreign bank).
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