Home / Industry / Banking /  RBI advises Lakshmi Vilas Bank to fully write down tier-2 bonds before DBS merger

Lakshmi Vilas Bank on Thursday informed the exchanges that Reserve Bank of India (RBI) has advised the bank to fully write down 318 crore of its tier-2 bonds before the amalgamation with Singapore-based DBS Bank comes into effect on 27 November 2020.

"The Reserve Bank of India, vide their letter dated 26th November 2020 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 i.e., 27th November 2020," the bank said in a regulatory filing.

Lakshmi Vilas bank, apart from Series VII Option B amounting to Rs.50.50 crore, has Series-VIII Series amounting to 78.10 crore, IX Series, amounting to 140.10 crore and X Series amounting to 100 outstanding Unsecured Non-convertible Redeemable Fully paid-up Basel-III complaint Tier-2 Bonds, the bank stated.

Write down was triggered as per terms of Info Memorandum of Tier 2 bonds issued by LVB as the bank was deemed to be approaching non-viability, RBI stated.

Lakshmi Vilas Bank will merge into DBS Bank on Friday, leading to removal of all restrictions, including withdrawal cap of 25,000, which the RBI had placed on the lender earlier this month.

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

All the branches of LVB will function as branches of DBIL with effect from November 27, the Reserve Bank of India (RBI) said in a statement.

"Customers, including depositors of the Lakshmi Vilas Bank Ltd will be able to operate their accounts as customers of DBS Bank India Ltd (DBIL) with effect from November 27, 2020. Consequently the moratorium on the Lakshmi Vilas Bank Ltd. will cease to be operative from that date," it said.

DBIL is making necessary arrangements to ensure that service, as usual, is provided to customers of LVB, the central bank added.

The RBI had superseded LVB's board on November 17 after the private sector lender was placed under a moratorium.

Meanwhile, the government issued a gazette notification which notified the Lakshmi Vilas Bank Limited (Amalgamation with DBS Bank India Limited) Scheme, 2020.

The government had earlier on November 17, on the advice of the RBI, imposed a 30-day moratorium on crisis-ridden LVB, restricting cash withdrawals at 25,000 per depositor.

LVB's troubles started after it shifted its focus to lend to large businesses from SMEs. With soaring NPAs, the bank was put under the Prompt Corrective Action framework of the RBI in September 2019.

The lender had sought the RBI's nod to amalgamate itself with Indiabulls Housing Finance and Indiabulls Commercial Credit in May 2019 to meet its capital requirements.

However, the deal could not get regulatory approval because of the RBI's aversion to let realty-focused entities into commercial banking.

On June 15, 2020, LVB had signed a preliminary, non-binding letter of intent with Clix Capital Services and Clix Finance India for a possible amalgamation with the Clix Group.

LVB posted a net loss of 836.04 crore in the year to March 2020. The bank had recorded a net loss of 396.99 crore during the second quarter ended September of this fiscal, which widened from 357.17 crore in the same quarter a year ago.

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