Government caps LVB withdrawals at Rs 25,000, RBI proposes merger with DBS – Times of India

CHENNAI: In a joint operation, the Reserve Bank of India on Tuesday announced a plan to merge Lakshmi Vilas Bank (LVB) with DBS Bank India, minutes after the government imposed a moratorium on the beleaguered lender, limiting cash withdrawals to Rs 25,000 for a month.
The proposed amalgamation with the Indian subsidiary of Singapore’s DBS Bank marks a shift in RBI and the government’s stand with a foreign bank being tasked with reviving an ailing old-generation private lender, instead of relying public sector players to takeover a problematic rival.
Since March, when Yes Bank was placed under moratorium, this is the second instance of a bank requiring RBI intervention. Unlike developed countries, in India, the government and the banking regulator avoid letting a bank collapse and step in to avoid any systemic problems.

Chennai-headquartered LVB that started in Karur, then a textile town in Tamil Nadu, has been under severe financial stress, with ballooning bad loans and in need of urgent capital infusion. LVB’s troubles started with the shift in focus from lending to small businesses to large players. In 2016-17, it intensified after it disbursed loans of around Rs 720 crore to the investment arms of Malvinder Singh and Shivinder Singh, former promoters of Ranbaxy, Fortis Healthcare and Religare, against Religare Finvest’s fixed deposits of Rs 794 crore.
In September 2019, with the situation deteriorating, RBI had put in under the Prompt Corrective Action framework, limiting expansion and seeking additional capital, which it failed to get.
First, its merger plan with Indiabulls did not find support from RBI, while subsequent discussions with Clix Capital were stuck over valuation. Last September, shareholders also blocked the appointment of a new CEO and seven directors at the AGM, deepening the crisis at the 94-year-old bank.

With the crisis lingering on, the government and RBI decided to step in on Tuesday in what appeared to be a pre-planned exercise.
Despite the monthly cap on withdrawals, LVB will continue to honour its commitment on various government bonds and other inter-bank payments. RBI also assured depositors that their interests were fully protected and there was no need to panic. Former Canara Bank chairman TN Manoharan has been appointed the administrator.
Although the moratorium is in place till mid-December, RBI has sought feedback on the drat amalgamation plan before Friday with the process expected to be speeded up.
As part of the revival strategy, DBS will invest an additional Rs 2,500 crore into LVB to support growth, RBI said.
“The proposed amalgamation will provide stability and better prospects to LVB depositors, customers and employees following a time of uncertainty. At the same time, the proposed amalgamation will allow DBIL to scale its customer base and network, particularly in South India, which has longstanding and close business ties with Singapore,” DBS Bank said.