BackMerger with LVB to strengthen DBS Bank’s India business, says Moody’s
The RBI on 17 November announced a draft scheme for the merger of Lakshmi Vilas Bank (LVB) with the wholly-owned subsidiary of DBS Bank in India soon after the government imposed a one-month moratorium till 16 December
PremiumNEW DELHI : Moody’s Investor Service on Wednesday said that Singapore-based DBS Bank will strengthen its India business with the acquisition of Lakshmi Vilas Bank (LVB), as proposed by the Reserve Bank of India in its draft scheme of amalgamation.
The RBI on 17 November announced a draft scheme for the merger of Lakshmi Vilas Bank (LVB) with the wholly-owned subsidiary of DBS Bank in India soon after the government imposed a one-month moratorium till 16 December on the private lender and capped deposit withdrawals at ₹25,000.
“The merger will strengthen DBS’s business position in India by adding new retail and small and medium sized customers. We estimate that DBS India's customer deposits and net loans will increase by about 50%-70% following the merger. LVB will also add around 500 branches to DBS India’s 27 branches," Moody’s said in a statement.
According to the global ratings agency, India is one of DBS’s priority markets, and the acquisition of LVB fits DBS’s expansion strategy. According to its estimate, the merger will increase DBS’s net loans in India to around 1.5% of group loans, from 0.9% as of 30 June 2020. DBS’s net loan exposure in India will remain small and will not alter the group’s credit profile, it said.
Moody’s also said that the acquisition will help DBS complement traditional physical branch banking with its digital strategy in India. “India and Indonesia are DBS’s core foreign markets where it is actively growing its digital banking services, and had more than 3 million digital bank customers in these two markets at the end of 2019. LVB will add retail and SME customers to DBS Bank India's mostly corporate and SME-focused loan book," it said.
“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.
On Tuesday, RBI had said that although DBS Bank India Ltd (DBIL) is well-capitalized, it will bring in additional capital of ₹2,500 crore upfront to support credit growth of the merged entity. 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.
“…LVB’s rescue process highlights the deficiencies in India’s bank resolution mechanism as the moratorium restricts full and timely payments to depositors and creditors, thereby leading to a temporary default by the bank. This is despite the fact that the Indian government recently gave powers to the RBI to resolve a bank without imposing a moratorium," Moody’s said.
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