PremiumNEW DELHI: The Union Cabinet, headed by Prime Minister Narendra Modi, on Wednesday approved the merger of Lakshmi Vilas Bank (LVB) with the wholly-owned subsidiary of Singapore-based DBS Bank in India. Following this, the government lifted restrictions on depositors regarding withdrawal of their money from the bank.
“The 20 lakh depositors and ₹20,000 crore deposits are fully secure. They need not worry, they need not rush. Deposits are in a stable bank," Union minister Prakash Javadekar said at a briefing, adding that officials responsible for the fiasco will be punished.
“Two more decisions have been taken: The liability will be fixed for the board which has been removed and those who have made mistakes will be punished. And there will be improvement in oversight…" he said.
Javadekar also said that the speedy amalgamation and resolution of the stressed lender was in line with the government's efforts to clean up the banking system, while protecting the interests of depositors and the financial system.
To protect the depositors’ interest and financial sector stability, on 17 November, the government imposed a one-month moratorium on LVB and capped deposit withdrawals at ₹25,000.
Soon after, the Reserve Bank of India (RBI) took control of the beleaguered lender and announced a draft scheme of amalgamation with DBS Bank India Ltd (DBIL). The banking regulator also named T.N. Manoharan, a former non-executive chairman of Canara Bank, as the administrator of LVB.
The merger is expected to rescue the capital-starved LVB and strengthen DBS’s business position in India.
“After inviting suggestions and objections from the public and stakeholders, RBI prepared and provided a scheme for the bank's amalgamation for the government's sanction, well in advance of end of the period of moratorium so that restrictions on withdrawal faced by the depositors are minimized," an official statement said.
DBIL will bring in additional capital of ₹2,500 crore to support credit growth of the merged entity, according to the draft scheme announced by the central bank. The combined balance-sheet of DBIL is expected to remain healthy even after amalgamation and its branches would increase to 600.
