LVB-DBS deal gets a thumbs up from rating agencies1 min read . Updated: 19 Nov 2020, 10:35 PM IST
- As part of the amalgamation, DBIL will infuse fresh capital of ₹2,500 crore into LVB
- Moody’s said the merger will strengthen DBS’s business position in India by adding new retail and small and medium-sized customers
Global credit rating agencies have applauded the Reserve Bank of India’s (RBI’s) move to merge capital-starved Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd (DBIL), the Indian arm of Singapore’s DBS Bank, saying the deal will benefit both lenders.
As part of the amalgamation, DBIL will infuse fresh capital of ₹2,500 crore into LVB. The regulator had put LVB under Prompt Corrective Action in September 2019 and the search for a white knight had been on since then.
The deal is positive for India’s banking sector and will bring much-needed relief to LVB, S&P Global Ratings said.
“We believe RBI took into account DBIL’s healthy balance sheet and capitalization when considering potential suitors for LVB," S&P said.
RBI issued a banking licence to DBIL on 4 October 2018 to operate as a banking company. As on 30 June, its total regulatory capital was ₹7,109 crore and its gross non-performing assets (GNPAs) and net NPAs were low at 2.7% and 0.5%, respectively. DBIL’s capital to risk-weighted assets ratio was 15.99%.
The proposed takeover of LVB by DBIL is not sufficiently large to immediately affect DBS’s credit ratings, Fitch Ratings said. “We regard LVB’s branches as one of its most coveted residual assets for a foreign buyer and believe that the readymade platform—which will enable deeper market penetration—is the key draw for DBS," it said.
DBS is pivoted to a hybrid physical-digital approach and aims to build more than 100 physical touchpoints across India by the end of the year, Fitch said. The proposed acquisition, it said, dovetails with the bank’s stated strategy and could significantly accelerate its ambitions in India upon successful integration to help it reap growth opportunities in the medium term.
Moody’s said the merger will strengthen DBS’s business position in India by adding new retail and small and medium-sized customers.
Moody’s estimated that DBIL’s customer deposits and net loans will increase by 50-70% following the merger.