India Markets close in 3 hrs 14 mins

Lakshmi Vilas Bank Faces Equity Wipeout, Shareholders to Get Nothing After Merger with DBS

News18
·3-min read

As per the draft scheme of amalgamation of the Lakshmi Vilas Bank (LVB) with DBS Bank India, the entire amount of the paid-up share capital will be written off.

“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 transferor bank, shall stand written off,” according to the draft scheme published on the RBI website.

The first announcement came from the central government on a one-month moratorium on the bank citing its deteriorating financials and failure to come with a revival plan on its own.

This was soon followed by two separate notifications by the RBI on superseding the Board of the Bank and about the draft scheme of amalgamation of LVB with DBS Bank.

“The bank management had indicated to the Reserve Bank that it was in talks with certain investors. However, it failed to submit any concrete proposal to Reserve Bank and the bank’s efforts to enhance its capital through amalgamation of a Non-Banking Financial Company (NBFC) with itself appears to have reached a dead end,” the RBI said in its statement on LVB.

The RBI has resorted to forced mergers in the past on a few occasions. The last one was when the RBI announced a scheme of amalgamation for IDBI-United Western merger in September 2006 and in the amalgamation of the Global Trust Bank Ltd. with Oriental Bank of Commerce.

The LVB has been trying to clinch a deal with Clix Group for a merger but this fell through as both couldn’t come with a concrete scheme to take to the discussion table with the regulator.

Last year, LVB had tried for a merger with Indiabulls, which didn’t get the RBI’s nod. There were also informal talks with another NBFC. That, too, fell flat. In the case of Clix Group, both parties had completed the larger due diligence. In October, it has received an indicative non-binding offer from Clix Group for the proposed merger. But, both parties couldn’t take the merger ahead.

While the uncertainty on the merger was continuing, the financials of the bank were worsening. In the second quarter, gross non-performing assets (GNPAs) continue to be too high at 24.45 percent, even the net NPAs stay too high at 7.01 percent. The bank’s capital levels are at precarious levels.

Going by the auditors’ note, the bank's Tier 1 Capital ratio has turned negative; the overall Capital Adequacy Ratio (CAR) as per Basel Ill guidelines was at negative 2.85 percent as of September 30.

The bank’s business has shrunk over the year. The total business of the bank was Rs 37,595 crore at the end of September 2020, as against Rs 47,115 crore at the end of September last year. Net loss after tax is Rs 396.99 crore for the quarter ended September 30, 2020, as against a net loss of Rs 357.18 crore for the year-ago quarter.

While a merger with DBS will safeguard the depositors of the bank, the fate of equity investors hangs in balance.