Lakshmi Vilas Bank bailout plan: 10 things to know

10 key things to know about RBI’s Lakshmi Vilas Bank bailout plan

LVB has been incurring losses for three years and had been placed under tough regulatory restrictions for more than a year ago

LVB logo. Credit: Twitter Photo/@LVBankLtd

The Reserve Bank of India has announced a draft scheme to amalgamate cash-strapped Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd. LVB has been incurring losses for three years and had been placed under tough regulatory restrictions for more than a year ago.

Also read: Lakshmi Vilas Bank under moratorium: Is your money safe?

Here are ten key things to know about the bailout plan:

- LVB has been placed under a one-month moratorium, and its board has been superseded, while a cap of Rs 25,000 per depositor has been imposed on withdrawals.

- The step was taken by the government, on the advice of the Reserve Bank, in view of the declining financial health of the private sector lender.

- On November 17, the RBI took charge of BSE-listed bank citing a “serious deterioration” of the lender’s finances and “absence of a credible revival plan”.

- Under the proposal, Singapore's DBS will infuse Rs 2,500 crore into DBS Bank India for the merger with LVB and the bank’s equity will be wiped out.

-  The proposed scheme of amalgamation is under the special powers of the Government of India and RBI under Section 45 of the Banking Regulation Act, 1949.

- The proposed amalgamation will provide stability and better prospects to LVB's depositors, customers and employees following a time of uncertainty.

- At the same time, 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

- Analysts have noted that despite the crippling size of LVB's non-performing assets, a merger would give DBS a valuable client base.

- In its statement regarding the moratorium, the RBI assured the depositors of LVB that their interest will be fully protected and there is no need to panic.

- In terms of the provisions of the Banking Regulation Act, the Reserve Bank has drawn up a scheme for the bank's amalgamation with DBIL.

(With agency inputs)