Lakshmi Vilas Bank (LVB) is a strategic asset that must not be given to DBS Bank India "free of cost", said a promoter of the Chennai-based lender that was on Tuesday put under moratorium for a month.
LVB is set to be folded into the Indian unit of Singapore's DBS under a plan proposed by the Reserve Bank of India (RBI), which took over the lender due to a "serious deterioration" in its finances. LVB has been in rough weather since a few years. In September, shareholders voted against seven board members—including interim MD and CEO S Sundar — at the annual general meeting. The bank has been struggling to raise capital.
K R Pradeep, one of the 25 promoters of LVB, said on Wednesday that RBI should revisit the troubled lender's valuation and not hand it over to DBS Bank. He and his group own 5 per cent in LVB.
To protect investors' interest, the RBI can adopt an open offer route as per Securities and Exchange Board of India's (Sebi) norms for delisting. "The RBI could have dealt with LVB in an open manner rather than deciding to hand it over free of cost to DBS Bank India," he said
“Without a depositors run on the bank, no risk of increased lending and the bank facing no crisis, the RBI need not have decided to give the LVB free of cost to DBS Bank India, a wholly-owned subsidiary of DBS Bank Ltd, Singapore without any bidding raises several questions,” Pradeep said.
The RBI can appoint reputed experts for valuating LVB; offer an opportunity for introducing capital or merger, or invite industrial houses to make an offer for the lender, he said, referring to the attempts to salvage beleaguered housing finance company Dewan Housing Finance Company Ltd.
LVB's net worth is positive; its provision coverage is about 80 per cent and the capital erosion is due to provisions and liquidity coverage is one of the best in the industry.
“In 1-3 years when the loans are recovered then these provisions will be reversed. When that happens it is DBS Bank India which would unduly benefit,” said Pradeep adding that nearly 50 per cent of the Rs 3,500 crore provisions will be reversed in a couple of years.
"The assets of the borrowers taken over by LVB have realisable monetary value. This seems to be not taken into account by RBI, Pradeep said. The Clermont Group had offered $300 million for 60 per cent stake in LVB in March 2020 and reiterated it in July 2020. Nobody offered to pay zero money to take over LVB."