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

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- LVB has been placed under a one-month moratorium, and its board has been superseded, while a cap of Rs 25,000 per depositor has been imposed on withdrawals.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