Approval of the Union Cabinet came nearly a week after a 30-day moratorium by on Lakshmi Vilas Bank was put by the Reserve Bank of India.
Earlier last month, the RBI placed crisis-ridden LVB under a moratorium and announced its merger with DBIL.
To ease the hardship for account holders and investors having accounts in Lakshmi Vilas Bank, caused by the restrictions on withdrawals due to the moratorium imposed by the Reserve Bank of India (RBI), approval has been given for merger of the 94-year bank into the Indian arm of Singapore-based DBS Bank.
“Lakshmi Vilas Bank was put under moratorium principally because of it not being a going concern. RBI and government acted swiftly to protect set of depositors and public at large,” said S Ravi, Former Chairman of Bombay Stock Exchange, Managing Partner at Ravi Rajan & Co.
After Punjab and Maharashtra Cooperative (PMC) Bank and Yes Bank, it’s the third time in relatively quick succession that the RBI has to act to save the interest of customers and investors by imposing moratorium on Lakshmi Vilas Bank (LVB).
However, apart from the equity investors, who have invested in the shares of the bank, the LVB crisis will have relatively lesser impact on mutual fund (MF) and other investors due to lack of exposure in its bonds and equity.
“After the failure of PMC Bank and Yes Bank government had to take quick remedial measures so that the confidence of the depositors is not shaken. In the past also Global Trust Bank was taken over by Oriental Bank of Commerce (OBC). The merger with DBS Bank is initiated primarily to protect and safeguard systemic issues arising out of failure of any bank,” said Ravi.
Approval of the Union Cabinet came nearly a week after a 30-day moratorium on LVB was put by the RBI.
“The issue of LVB and its governance has to being causing concern to all stakeholders since a long time. Government and RBI had to find a suitable bank which has the bandwidth to absorb such an entity,” said Ravi.
“The choice of DBS surely would have been evaluated by the RBI for deciding the course of action. There how many viewpoints which are being expressed including the rights of existing shareholders etc,” he said.
Following the merger, DBS India will get access to 563 branches of the 94-year old Lakshmi Vilas Bank.
“There was no plan which was offered by the existing shareholders, which could instill confidence that the bank would be turned around under the same management,” said Ravi.
The approval for merger would result into removal of all restrictions on the customers of LVB, including withdrawal cap of Rs 25,000, with the removal of moratorium on November 27.
“LVB merger with another bank is a very prudent step in order to save the depositors and to mitigate the systematic disruption associated with it. Image of government and regulator gets enhanced by such timely action and response,” said Ravi.