LVB-DBS India merger: RBI directs Lakshmi Vilas Bank to write off tier-2 bonds worth nearly ₹320 crore

LVB-DBS India merger: RBI directs Lakshmi Vilas Bank to write off tier-2 bonds worth nearly ₹320 crore
A day ahead of its merger with the Indian arm of Singapore-based DBS Bank, the debt-ridden Lakshmi Vilas Bank (LVB) on Thursday has written off bonds worth Rs 318.20 crore as per the existing provisions. As per the effective date of merger notified by the Reserve Bank of India (RBI) on Wednesday, LVB will lose its identity on Friday as it amalgamates with DBS Bank India Ltd.

The RBI, vide their letter on Thursday, has advised the need to fully write down the Series VIII, Series IX and Series X Basel-III complaint tier-2 bonds before the amalgamation comes into effect from the appointed date (November 27), LVB said in one of its last communications to stock exchanges.

"If the relevant authorities decide to reconstitute the bank or amalgamate the bank with any other bank under the Section 45 of the Banking Regulation Act, such a bank shall be deemed as non-viable and both the pre-specified trigger and the trigger at the point of the point of non-viability for write-down of bonds shall be activated.

"Accordingly, the bonds shall be written off before amalgamation or reconstitution in accordance with applicable rules," according to the terms of the information memorandum of the respective Basel-III Tier-2 bonds issued by the bank.

In the light of above provision, such Basel-III Tier-2 bonds would need to be fully written down before amalgamation of the bank comes into effect, LVB said quoting Thursday's letter from the RBI.

On Wednesday, the RBI notified the effective date of merger of November 27 soon after the Union Cabinet headed by Prime Minister Narendra Modi approved the Scheme of Amalgamation of LVB with DBS Bank India Ltd (DBIL).


The RBI had superseded LVB's board on November 17 after the private sector lender was placed under a 30-day moratorium restricting cash withdrawals at Rs 25,000 per depositor.

The RBI simultaneously placed in public domain a draft scheme of amalgamation of LVB with DBIL.

Started by a group of seven businessmen of Karur in Tamil Nadu under the leadership of V S N Ramalinga Chettiar in 1926, LVB has 566 branches and 973 ATMs spread across 19 states and Union Territories.

With non-performing assets (NPAs) soaring, the bank was put under the prompt corrective action framework of the Reserve Bank of India (RBI) in September 2019.

LVB is the second private sector bank after Yes Bank that has run into rough weather this year.

In March, capital-starved Yes Bank was placed under a moratorium. The government rescued Yes Bank by asking State Bank of India (SBI) to infuse Rs 7,250 crore and take 45 per cent stake in the lender.

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