Depositors Need Not Worry About LVB-DBS Merger

After the failure of IL&FS, PMC Bank and DHFL, and the bailout of Yes Bank, RBI has decided to impose a 30-day moratorium and issued a draft scheme for amalgamation of capital-starved Lakshmi Vilas Bank (LVB) with DBS India, a subsidiary of DBS Singapore. The foreign bank is expected to bring capital worth Rs 2,500 crore to support credit growth.

According to RBI, the financial position of LVB has undergone a steady decline over the last three years. The bank posted a net loss of Rs 397 crore in the September quarter of FY21. Its NPA stood at 25.4 per cent of its advances as of June 2020 as against 17.3 per cent a year ago.

RBI capped withdrawals at Rs 25,000 a month ago, and this has raised concern among depositors, who claim the amount might not be enough in taxing times.

T N Manoharan, the RBI-appointed administrator of LVB, assured that depositors’ money is safe.

“The combined balance sheet will remain healthy after the amalgamation with Capital to Risk-Weighted Assets Ratio (CRAR) at 12.51 per cent and CET-1 ( Common Equity Tier-1) at 9.61 per cent,” he added.

“It is estimated that the merger will increase DBS’ net loans in India to around 1.5 per cent of group loans, from 0.9 per cent as of June 30, 2020,” Moody’s said in a statement.

“RBI, primarily, in this case, is trying to protect the interests of the depositors. However, there is no consistent or predefined parameter. In the case of Yes Bank, Tier 2 bonds lost their entire amount and shareholders received shares at a substantial marked down value. Here, the shareholders are set to lose their entire value,” said Juzer Gabajiwala, Director, Ventura Securities. “Depositors are concerned; however, they will not have to worry as DBS will take over the liability.”