Lakshmi Vilas Bank Merger: Lakshmi Vilas Bank, which is facing crisis due to lack of cash, has cleared the path of merger with DBS Bank. The cabinet today approved the merger proposal of the Reserve Bank of India. After the Cabinet approval, Laxmi Vilas Bank will be merged with the Indian entity of Singapore’s largest bank DBS Bank. This will be the first time that an Indian bank is being merged with a foreign bank to save it from drowning.
What is the whole deal
Lakshmi Vilas Bank is the second bank of the year which RBI has saved from drowning. Earlier in March, the RBI saved Yes Bank from drowning. According to the RBI plan, Singapore government-backed DBS will invest Rs 2500 crore in Lakshmi Vilas Bank. Under this, DBS Bank will have access to its home, personal loan and small scale industry loan customers through 560 branches of Lakshmi Vilas Bank.
Under this deal, DBS India will get a franchise of $ 1.6 billion in 563 branches, 974 ATMs and retail businesses. At the same time, the equity of 94-year-old Lakshmi Vilas Bank will also be completely lost. The entire deposit of the bank will go to DBS India.
What is the effect on customers, shareholders?
Under the bailout package, depositors of Lakshmi Vilas Bank will get all their money. Even if they want to keep their money in the bank, it will be safe. According to RBI’s plan, employees of Lakshmi Vilas Bank will become employees of DBS Bank. But the share holders of Lakshmi Vikas Bank will incur losses. Currently Laxmi Vilas is the bank’s net worth negative. In such a merger, the bank’s share holders will not get money.
Moratorium is applicable on the bank
Explain that RBI has implemented 1 month Moratorium on Laxmi Vilas Bank this month. It has also set a withdrawal limit for the customers of the bank. The customers of the bank will not be able to withdraw more than Rs 25,000 from their account. According to the Reserve Bank of India, the financial position of Lakshmi Vilas Bank has been continuously deteriorating. It has incurred losses in the last three years, due to which it has lost its net worth. Losses are expected to continue due to lack of any strategic plan, dwindling advances and rising non-performing assets. The bank was placed in the Prompt Corrective Action (PCA) framework in September 2019.