LVB to be merged with DBS Bank India, employees to continue service

The Reserve Bank of India (RBI) has put out a draft scheme of amalgamation of troubled Lakshmi Vilas Bank Ltd. (LVB) with DBS Bank India -- a wholly-owned subsidiary of DBS Bank Singapore.

As part of the amalgamation plan, the LVB would cease to exist and its shares would be delisted from the stock exchanges. "On and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank, shall stand written off," the draft scheme put out by the Reserve Bank of India said.

However, as per the draft plan of the RBI, none of the bank's close to 3,000 employees would be sacked due to the amalgamation plan. "All the employees of the transferor bank shall continue in service and be deemed to have been Appointed in the transferee bank at the same remuneration and on the same terms and conditions of service, as were applicable to such employees immediately before the close of business on November 17, 2020," the draft scheme proposes.

Read: Lakshmi Vilas Bank placed under moratorium for a month; withdrawals capped at Rs 25,000 till December 16

As part of the merger plan, DBS Bank India will bring in additional capital of Rs 2,500 crore upfront, to support credit growth of the merged entity.

DBS Bank India, as on June 30, 2020, its total Regulatory Capital was ₹7,109 crore (against the capital of Rs 7,023 crore as of March 31, 2020). As of June 30, 2020, its GNPAs and NNPAs were low at 2.7% and 0.5% respectively; Capital to Risk-Weighted Assets Ratio (CRAR) was comfortable at 15.99% (against the requirement of 9%); and Common Equity Tier-1 (CET-1) capital at 12.84% was well above the requirement of 5.5%.

Owing to a comfortable level of capital of DBS Bank India, the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with CRAR at 12.51% and CET-1 capital at 9.61%, without taking into account the infusion of additional capital.

Interestingly, just like the YES Bank, at the time of its collapse, the majority of the shareholding in the LVB is held by the retail shareholders -- totalling to 46.73%. On the other hand, the promoter group holds a mere 6.8% stake. The shares of the bank closed at Rs 15.50 (down 0.96%) at BSE on Tuesday.