Lakshmi Vilas Bank and DBS Merger

Case Code: CLFIN029 Case Length: 4 Pages Period: 2017-2020 Pub Date: 2021 Teaching Note: Available

Price: Rs.200 Organization : Lakshmi Vilas Bank Industry :Banking Countries : India Themes: Banks and Banking, Financing

Abstract

During the last week of November 2020, the Government of India (GoI) approved the merger of Lakshmi Vilas Bank (LVB) with Singapore-based DBS Group Holding’s Indian subsidiary, DBS Bank India Limited (DBS). This was the first time in the history of banking in India that a local bank was being merged with a foreign bank. By initiating the merger proceedings of LVB with DBS, the Reserve Bank of India set a benchmark and, in the process, safeguarded the Indian banking system by allowing banks that were struggling financially to receive investment from strong foreign banks.

The present case study can be used to discuss the concept of moratorium period, Prompt Corrective Action, challenges Indian banks face, and the operational challenges that foreign banks in India are confronted with.

Issues

• Moratorium Period .
• Prompt Corrective Action.
• Challenges of Indian Banks .
• Foreign Banks in India.

Introduction

On November 26, 2020, the Union Cabinet Chaired by the Prime Minister of India, Narendra Modi, approved the merger of Lakshmi Vilas Bank (LVB) with Singapore’s leading Banking Group, DBS Group Holdings (DGH). DGH acquired control over LVB through its wholly-owned subsidiary DBS Bank India Limited (DIL). Prior to the approval of the Union Cabinet, on November 17, 2020, the Reserve Bank of India (RBI) imposed a moratorium period of 30 days on LVB due to its poor financial condition.>br>
Once the news of imposition of moratorium was out, agitated depositors began withdrawing their money, thereby affecting the liquidity position of the bank. In order to prevent further damage to the shareholders and to protect the interests of shareholders, the RBI imposed restrictions on the operations of LVB until the process of merging with DBS was initiated formally. During the moratorium period, limits were imposed on the withdrawal of deposits by LVB's depositors. Each depositor was permitted to withdraw only Rs.25,000 irrespective of the number and amount of deposits they held. However, there was an exception made to this condition –when the depositors had to meet medical expenses, educational expenses, marriage expenses, etc., they were permitted to withdraw more than the specified amount of Rs.25,000, but not exceeding Rs. 0.50 million, on submission of the required documents.

Keywords

Moratorium Period; Reserve Bank of India; Prompt Corrective Action; Lakshmi Vilas Bank; DBS Group Holdings; DBS Bank India Limited; Wholly-owned Subsidiary; Capital to Risk weighted Assets Ratio (CRAR); Common Equity Tier (CET) 1 ratio; Net Non-Performing Advances (NNPA) Ratio; Return on Assets (ROA); Tier-1 Leverage Ratio; Risk Threshold 1; Risk Threshold 2; Risk Threshold 3

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