The government on Wednesday approved the merger of crisis-ridden Lakshmi Vilas Bank (LVB) with the DBS Bank India Ltd (DBIL), a subsidiary of DBS Bank, Singapore with a total regulatory capital of Rs 7,109 crore as of June 2020.
The Central government notified in the official gazette that the Lakshmi Vilas Bank Limited (Amalgamation with DBS Bank India Limited) Scheme, 2020 will come into force on November 27.
Union minister Prakash Javadekar asserted that there will be no further restrictions on the depositors regarding withdrawals other than the current moratorium. Depositors are also being assured that Rs 20,000 crore of deposits with LVB are fully secured and they should not worry.
The government had earlier on November 17 on the advice of the RBI imposed a 30-day moratorium on the crisis-ridden LVB restricting cash withdrawal at Rs 25,000 per depositor.
The RBI simultaneously placed in public domain a draft scheme of amalgamation of LVB with DBIL. The RBI had also superseded the board of the bank.
The Union Cabinet has approved the Scheme of Amalgamation of Lakshmi Vilas Bank Limited (LVB) with DBS Bank India Limited (DBIL), Javadekar told reporters, adding the decision will provide comfort to 20 lakh depositors and protect the services of 4,000 employees.
“The 20 lakh depositors and Rs 20,000 crore deposits are now fully secured. They need not worry. They should not rush, their deposits are in the best hand,” he said.
Although the DBIL is well capitalised, it will bring in additional capital of Rs 2,500 crore upfront, to support credit growth of the merged entity.
Meanwhile, an official release said that with the approval of the scheme, “LVB will be amalgamated with DBIL from the appointed date, and with this, there will no further restrictions on the depositors regarding withdrawal of their deposits”.
The minister further said that those responsible for deteriorating financial health of the LVB would be penalised.
“…two more decisions have been taken that the board which has been removed, the liability will be fixed. Those who have made mistakes, will be punished. There will be improvement in overall oversight also so as not to repeat such bank deals in future. This is one of the big efforts of cleaning up the banking system,” he said.
As per the notified scheme, DBS Bank India has the option of merging the 563 branches of LVB according to its convenience or close down or shift as per the instructions issued by the RBI.
Interestingly, DBS Bank India, with about 33 branches, has a deposit base of about Rs 20,000 crore and has much less employees.
On the other hand the LVB, with a branch network of 563, has a deposit base of Rs 20,000 crore spread over 20 lakh depositors.
The RBI simultaneously placed in public domain a draft scheme of amalgamation of LVB with DBIL, a banking company incorporated in India under Companies Act, 2013, and having its Registered Office at New Delhi.
DBIL is a banking company licensed by RBI and operating in India through wholly-owned subsidiary model. The parent company DBS is a leading financial services group in Asia with presence in 18 markets and headquartered and listed in Singapore.
The combined balancesheet of DBIL would remain healthy even after amalgamation and its branches would increase to 600, the release said.