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Lakshmi Vilas Bank hits the roof after cabinet OKs merger with DBS Bank

Capital Market 

Lakshmi Vilas Bank (LVB) hit an upper circuit of 5% at Rs 7.65 after the union cabinet approved the scheme of amalgamation of the cash-strapped bank with DBS Bank India.

The amalgamation will come into force on the appointed date i.e. 27 November 2020. All the branches of the LVB will function as branches of DBS Bank India with effect from this date.

On and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the shares or securities premium account of LVB shall stand written off. LVB shall cease to exist by operation of this scheme, and its shares or debentures listed in any stock exchange shall stand delisted without any further action from the transferor bank, transferee bank or order from any authority.

Customers, including depositors of the LVB will be able to operate their accounts as customers of DBS Bank India with effect from 27 November 2020. Consequently the moratorium on LVB will cease to be operative from that date. DBS Bank India is making necessary arrangements to ensure that service, as usual, is provided to the customers of LVB.

Shares of LVB surged 10% from the day's low of Rs 6.95 to hit the day's high of Rs 7.65.

From its close of Rs 15.65 on 14 November 2020, the stock tumbled 55.59% in six sessions to hit a record low of Rs 6.95 today.

The counter came under the spotlight after the central government on 17 November 2020 placed the cash-strapped bank under moratorium for a period of one month. The bank's customers were allowed to withdraw only Rs 25,000 from their accounts during the moratorium. In parallel, RBI, in consultation with government, superseded the board of directors of LVB. T N Manoharan, former non-executive chairman of Canara Bank, was appointed as the administrator of LVB.

At the same time, RBI had invited comments on its draft merger scheme between LVB and with DBS Bank India (DBIL). DBIL is a wholly owned subsidiary of Singapore-based DBS Bank, which in turn is a subsidiary of Asia's leading financial services group, DBS Group Holdings. It has been issued a banking license to operate as banking company on 4 October 2018.

DBIL has a healthy balance sheet, with strong capital support. Although the DBIL is well capitalised, it will bring in additional capital of Rs 2500 crore upfront, to support credit growth of the merged entity. Owing to comfortable level of capital, 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, the central bank said in a statement.

As 30 September 2020, LVB's operations are spread over a network of 563 branches (includes 7 commercial banking branches, 1 satellite branch) and 5 extension counters with PAN India presence, supervised by 7 regional offices. While, the bank continues to have significant presence in the state of Tamil Nadu, it has presence in 16 states and 3 union territories across the length and breadth of the country.

With the approval of the scheme, LVB will be amalgamated with DBIL from the appointed date, and with this there will no further restrictions on the depositors regarding withdrawal of their deposits.

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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First Published: Wed, November 25 2020. 17:09 IST