The Union Cabinet on Wednesday approved the merger of Lakshmi Vilas Bank (LVB) with the Indian arm of Singapore’s DBS Bank.
Notably, the Reserve Bank of India (RBI) had on November 17 placed the cash-strapped bank under one-month moratorium. It had superseded LVB’s board and capped withdraws during the moratorium period to Rs 25,000 per depositor.
Withdrawal restrictions to be lifted
Union minister Prakash Javadekar said the restrictions on withdrawal will be lifted with the merger. RBI had earlier proposed the merger of the 94-year-old LVB with DBS Bank. For the merger, a fresh capital infusion of Rs 2,500 crore will be made by DBS into LVB.
Notably, DBS was the first foreign bank to receive a banking licence after the central bank allowed foreign banks to set up a wholly-owned subsidiary in 2014.
During a media briefing, 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.”
Lakshmi Vilas Bank shares ended 4.79% higher at Rs 7.65.
How the trouble began for Lakshmi Vilas Bank
Lakshmi Vilas Bank has been facing a deterioration in asset quality and is on the search for a new buyer for the last one year. It was reportedly in talks with Clix Capital for capital infusion and a possible merger.
The troubles for the bank began in 2019 when the RBI rejected a proposal for its merger with shadow lender Indiabulls Housing Finance.
Last month, Lakshmi Vilas Bank’s founder KR Pradeep told the media that there was no liquidity problem in the bank. He claimed that it had a 260% liquidity coverage ratio versus the 80% that is required.
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