Cabinet approves Merger of Lakshmi Vilas Bank With DBS India

The cabinet has approved the merger of Lakshmi Vilas Bank (LVB) with DBS India on November 25, 2020.

Highlights

  • DSB India is a wholly-owned subsidiary of DBS Bank.
  • This speedy amalgamation and resolution of the stress in the Lakshmi Vilas Bank has been done in light with the commitment of the government for a clean banking system.
  • The government has a aim of clean banking system besides protecting the interests of depositors, public and financial system.
  • Once the merger is finalised, there will no restrictions on the depositors to withdraw their deposit.
  • Under the merger plan, DBS India will invest a fresh capital of ₹ 2,500 crore into the stressed bank. Apart from that, entire share capital & reserves and surplus will be waived off.

Background

The Reserve Bank of India (RBI) had proposed the merger of the 94-year-old stressed bank with the DBS India on November 17, 2020. The RBI had also put the bank under a moratorium for one month. IT has also put restrictions on the withdrawals from customers’ accounts at ₹ 25,000 in a month. RBI also superseded the board of the LVB and appointed T N Manoharan as administrator of the bank for 30 days.

How merger of LVB and DBS India is different?

This is the first time that RBI has tasked a bank with a foreign parent so as to revive the private lender.

Forced merger scenario in India

The RBI has done the forced mergers in the past several tines. In September 2006, RBI had announced the scheme of amalgamation for IDBI-United Western merger. The apex bank has also announced the scheme for the merger of Global Trust Bank with Oriental Bank of Commerce in 2004.

Mega merger of banks

Government of India has consolidated 10 Public Sector Banks into 4 banks in the year 2019. This merger was done in order to help manage the capital more efficiently. Under the mega merger plan- Oriental Bank of Commerce and United Bank of India were subsumed under the Punjab National Bank (PNB); Allahabad Bank was merged with the India Bank; Syndicate Bank was merged with the Canara Bank while Andhra Bank and Corporation Bank were merged with the Union Bank of India.  After this merger, there are a total of 12 public sector banks including the State Bank of India (SBI) and the Bank of Baroda (BoB).