The proposed scheme of amalgamation is under the special powers of the Government of India and RBI under Section 45 of the Banking Regulation Act, 1949, DBS India said in a release.
The proposed amalgamation will provide stability and better prospects to LVB’s 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, it said.
“To support the amalgamation, DBS will inject Rs 2,500 crore (SGD 463 million) into DBIL if the scheme is approved. This will be fully funded from DBS’ existing resources,” it said.
DBS will await final decision on the proposed scheme from RBI and the Government of India, and will announce further details at a later stage, it added.
LVB has been placed under a one-month moratorium, and its board has been superseded, while a cap of Rs 25,000 per depositor has been imposed on withdrawals.
The step was taken by the government, on the advice of the Reserve Bank, in view of the declining financial health of the private sector lender.
LVB has a 94-year history in India, with an established retail and SME customer base, and a strong presence in South India.
DBS has been in India since 1994. In March 2019, to expand the franchise and build greater scale, DBS converted its India operations to a wholly-owned subsidiary, DBIL. DBIL is now present in 24 cities across 13 states.
In its statement regarding the moratorium, the RBI assured the depositors of LVB that their interest will be fully protected and there is no need to panic.
In terms of the provisions of the Banking Regulation Act, the Reserve Bank has drawn up a scheme for the bank’s amalgamation with DBIL.
With the approval of the central government, the RBI will “endeavour to put the Scheme in place well before the expiry of the moratorium” and thereby ensure that the depositors are not put to undue hardship or inconvenience for a period of time longer than what is absolutely necessary, it said.