MERGER OF LAKSHMI VILAS WITH DBIL –

THE ULTIMATE PANACEA BY RBI*

Lakshmi Vilas Bank (LVB) is the fifth Indian financial firm to collapse over a span of 3 Years after Infrastructure Leasing and (IL&FS), Dewan Housing Finance Limited (DHFL), and Punjab and Maharashtra Cooperative (PMC) Bank. LVB was an Indian private sector bank founded in 1926 by a group of seven businessmen of Karur under the leadership of Shri V. S. N. Ramalinga Chettiar. Their objective was to cater to the financial needs of people in and around Karur who were occupied in trading businesses, industry and agriculture. Cause of Failure of LVB The financial position of The Lakshmi Vilas Bank Ltd. has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth. In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses. Further, the bank is also experiencing continuous withdrawal of deposits and low levels of liquidity. It has also experienced serious governance issues and practices in the recent years which have led to deterioration in its performance. The bank was placed under the Prompt Corrective Action (PCA) framework in September 2019 considering the breach of PCA thresholds as on March 31, 2019. The Reserve Bank had been continually engaging with the bank’s management to find ways to augment the capital funds to comply with the capital adequacy norms. The bank management had indicated to the Reserve Bank that it was in talks with certain investors. However, it failed to submit any concrete proposal to Reserve Bank and the bank’s efforts to enhance its capital through amalgamation of a Non-Banking Financial Company (NBFC) with itself appears to have reached a dead end. As such, the bank- led efforts through market mechanisms have not fructified. As bank-led and market-led revival efforts are a preferred option over a regulatory resolution, the Reserve Bank had made all possible efforts to facilitate such a process and gave enough opportunities to the bank’s management to draw up a credible revival plan, or an amalgamation scheme, which did not materialize. In the meantime, the bank was facing regular outflow of liquidity.

* CA Sarika Verma, Assistant Director and CS Pankhuri Agrawal, GST Consultant, The ICSI Views expressed in the Article are the sole expression of the Author(s) and may not express the views of the Institute.

STUDENT COMPANY SECRETARY | FEBRUARY 2021 5

Article 6

capital capital at 12.84% was well above the requirement of 5.5%. Although Tier the DBIL Equity is Commonwell capitalised, and 9%); of requirement (against 15.99% at comfortable was We Risk to Capital respectively; 0.5% and 2.7% at low were NNPAs crore (against Capital of balance sh healthy a has DBIL 2018. 4, October on banking Act, R as B operate the of to (1) 22 license Section under banking company a issued been has It parentage. strong a a is of advantage turn in which (“DBS”), Singapore Ltd, lea Bank Asia’s of subsidiary DBS of subsidiary owned wholly a is DBIL with (LVB) incorporated in Ltd. India under Companies Act, 2013, and having its Registered Office at New Delhi. Bank Vilas Lakshmi Central has India of Bank Reserve The with consultation RBI announces SchemeofAmalgamation Draft in has, of theAct. Bank Non has bee former Manoharan, N. T. Shri Reserveinterest. depositors’ the protect to the donebeen has This the bank. of position financialthe in deterioration serious to owing days30 1949, Government, Act Regulation Sub under conferred powers the of exercise In Board Supersession ofthe stationery, etc.printing, Legal expenses e) etc. d) postageandtelegrams. assets, or properties obligations in respect of the following items. a) salaries of its employees, b) rent, rates and taxes, c) of 202 17, any November dated of moratorium dispose otherwise of order the by or permitted extent the to made be can creditors and depositors transfer to Disbursement shall or agreement, or whether in discharge of its liabilities and obligations or payment, any disburse to agree or liability any incur investment, any make not shall 2020, 17, Regulation Act, 1949 directs that The Lakshmi Vilas Bank Ltd., as from 1800 hours on November T is absolutely necessary. depositors are not ex put to undue hardship the or inconvenience for a period before of time longer than what well place banking in Scheme another the with amalgamation bank’s the for scheme company. With the approval of the Central a Government, the Reserve Bank will endeavour to put up drawn has provi Bank the Reserve of terms In panic. to need no is there and protected fully be will interest their that bank the of depositors the assures Bank Reserve The Banking the of 45 section Government hasimposed B under Reserve the moratorium considering after a Accordingly, 1949. imposing Act, Regulation for Government Central the the to to deposito come protect to view has a with Bank plan, interest and revival in the interest of financial and banking Reservestability, there is no alternative but to credible apply a the of absence the developments, in that these conclusion consideration into taking After underMoratorium LVB placed he Reserve , in exercise of the powers vested under Section 35A of the of 35A Section under vested powers the of exercise in India, of Bank Reserve he eet, with strong capital support. As on June 30, 2020, its total Regulatory Capital was Capital Regulatory total its 2020, 30, June on As support. capital strong with eet,

superseded the Board of Directors of Board the superseded n

appointed as the Administrator ding financial services group, DBS Group Holdings Limited and has the has and Limited Holdings Group DBS group, services financial ding

` 7,023 crore as on March 31, 2020). As on June 30, 2020, its GNPAs and

moratorium of Directorsof p laced

in public domain public in

for date. days thirty effective from specified 0,

iy f h mrtru ad hrb esr ta the that ensure thereby and moratorium the of piry B Bn Ida t. DI) a akn company banking a (DBIL), Ltd. India Bank DBS

Expenditure may be incurred towards meeting the the meeting towards incurred be may Expenditure & Appointment of Administrator Administrator & Appointment of -

Banking the of A C A 36 Section of (1) section

of The Lakshmi Vilas Bank Ltd. for a period of period a for Ltd. Bank Vilas Lakshmi The of

FEBRUARY 2021 FEBRUARY sions of the Banking Regulation Act, the Act, Regulation Banking the of sions

under Sub

otherwise, or enter into any compromise a draft a

scheme of amalgamation of scheme -

section (2) of Section 36 A C A | STUDENT COMPANY SECRETARY|STUDENT COMPANY ighted Assets Ratio (CRAR) Ratio Assets ighted n’ eus,te Central the request, ank’s

- Executive Chairman of Chairman Executive

- 1 (CET 1

Banking

` of The The of 7,109

- rs’ 1) 1)

Article

7 - - from date.

head your - - at of -

much - Scheme for the information

- 1 1 capital at 9.61%,

- how base, good corporate corporate good base, d d for operation - able to operate their ctices, ctices, adoption of new

cease contact know

- - were were was bank -

trouble - in vilas

- -

DBS Bank India Ltd, DBS Bank India the Lakshmi Vilascalled -

***

more - prudent prudent commercial pra crore upfront, to support credit growth of the merged merged the of growth credit support to upfront, crore

November, November, 2020 sanctioned the

necessary necessary arrangements to ensure that service, as usual, th

2500 ` as branches of DBS Bank India Ltd. with effect from th from effect with Ltd. India Bank DBS of branches as made ing ing bank/ - ctinformation.com/lakshmi on FEBRUARY 2021 FEBRUARY the - org.in/scripts/BS_PressReleaseDisplay.aspx?prid=50672 functi

with - id/ - to account the of additionalto account infusion capital. e moratorium on the Lakshmi Vilas Bank Ltd. safe - started started th of the Lakshmi Vilas Bank the Lakshmi Vilas of Ltd. with is

, -

email -

:

https://www.informalnewz.com/two deposit https://companyconta office https://www.rbi.

2. 3. 1. me into force on the appointed date i.e. November 27, 2020. All the branches of the Lakshmi STUDENT COMPANY STUDENT SECRETARY | a

bank crisis. Source the smooth functioning of bank. The issues relating to the adequate capital capital adequate the to relating issues The bank. of functioning smooth the governance, sound private prevent to actions prime are etc. balances and business checks of system adequate and technology principle, Conclusion: Conclusion: for one priority the are frauds prevent to ability and advance irregularitiesin of unearthing The Consequently that date. DBS Bank India Ltd. to the Vilasthe Lakshmi customers of Bank Ltd. provided Customers, Customers, including depositors of the Lakshmi Vilas accounts Bank Ltd. as customers of DBS Bank India Ltd. with effect from November 27, 2020. Bank Bank Limited (Amalgamation with DBS Bank India Limited) Scheme, 2020. The amalgamation c Ltd. Bank Vilas The The Government of amalgamation India on 25 without taking in taking without 2020 Scheme, Limited) India Bank with DBS (Amalgamation Limited Bank Lakshmi Vilas it will bring in additional capital of of capital additional in bring will it entity. Owing comfortableto level of capital, the combined balance sheet of remain DBIL would healthy after the proposed amalgamation, with CRAR at 12.51% and CET