Lakshmi Vilas Bank’s shares fall 20% after merger with DBS
The lender’s stock hit its lowest permissible trading limit on Wednesday
NEW DELHI: Shares of Lakshmi Vilas Bank on Wednesday tanked as much as 20% to hit its lowest permissible trading limit on Wednesday after the government placed the lender under a one-month moratorium and superseded its board. The scrip cracked 20% on BSE to hit its lower circuit limit of ₹12.4.
On NSE, the shares plunged 19.94% to lock in the lower circuit of ₹12.45.
The banking regulator seized control of the struggling Lakshmi Vilas Bank (LVB) and forced a merger with the local unit of Singapore’s largest lender DBS Bank, the first time the central bank has tapped a bank with a foreign parent to backstop an Indian rival.
As part of the merger process, the Reserve Bank of India (RBI) said the Union government, on the request of the regulator, has capped deposit withdrawals at ₹25,000 at LVB for a month.
The Reserve Bank’s surprise intervention to force the capitalstarved private lender to merge with a stronger rival came after watching the bank struggle to find a suitor to help it meet minimum capital buffers.
The bank’s problem intensified after RBI shot down its proposal to merge with Indiabulls Housing Finance Ltd in October last year. Thereafter, a proposed merger with Clix Capital Ltd also collapsed.
However, the merger is bad news for LVB’s shareholders, who were betting on a revival of the bank. The entire capital of the bank will be written off post the merger with DBS Bank India Ltd (DBIL).
“According to the draft scheme of amalgamation, on and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the LVB, shall stand written off,” the RBI notification said. “The transferor bank (LVB) shall cease to exist by operation of the scheme, and its shares or debentures listed on any stock exchange shall stand delisted.”
Following the supersession of the bank’s board, RBI named TN Manoharan, a former non-executive chairman of Canara Bank, as the administrator of LVB.
This is the third time in a little more than a year that RBI has seized control of a bank. The other two were Punjab and Maharashtra Co-operative (PMC) Bank and YES Bank Ltd.
DBIL, a wholly owned subsidiary of DBS Bank Ltd, Singapore, has the advantage of strong parentage, the Reserve Bank said.
“Although DBIL is well-capitalized, it will bring in additional capital of ₹2,500 crore upfront to support credit growth of the merged entity,” the Reserve Bank of India said, adding that the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with capital to risk-weighted assets ratio (CRAR) at 12.51%, without taking into account the infusion of additional capital.
“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,” DBS Bank India said in a statement, adding that the capital infusion into LVB will be funded from its existing resources.
As on June 30, DBIL’s total regulatory capital was ₹7,109 crore, and its gross non-performing assets (GNPAs) and net NPAs were at 2.7% and 0.5%, respectively. The lender’s CRAR was at 15.99%.
The latest available numbers show that LVB had deposits of ₹20,973 crore and a loan book of ₹13,505 crore. However, 24.45% of its total advances turned sour as on 30 September. As of 31 March, the 20 largest depositors of the bank had ₹1,580 crore in the bank, comprising 7.37% of the bank’s deposits.
Lakshmi Vilas Bank has been gasping for capital. Not only did its capital adequacy ratio fail to meet regulatory norms, but the ratio had also turned negative in the September quarter. Its capital adequacy ratio (CAR) as per Basel III guidelines shrank to -2.85% as on 30 September, as against a regulatory minimum of 10.875%.
LVB’s loss widened to ₹397 crore in the September quarter from ₹357 crore in the year earlier. Lakshmi Vilas Bank, which has been under the Reserve Bank ’s prompt corrective action (PCA) since September 2019, said on 8 October that it had received an indicative non-binding offer from Clix Capital.