Yet another financial institution has failed and is being rescued. The Reserve Bank of India (RBI) on Tuesday proposed to merge Lakshmi Vilas Bank (LVB) with the Indian subsidiary of Singapore-based DBS Bank. LVB was also placed under a moratorium by the government for a month and depositors would be allowed to withdraw only Rs 25,000 during this period. According to the plan, the entire paid-up share capital, and reserves and surplus of LVB will be written off. However, the interests of depositors and employees will be protected. In the end, this might look like a smooth process, where the interests of depositors and employees are protected, and a troubled entity is merged with a strong financial institution looking for growth opportunities. DBS Bank has a healthy balance sheet with sufficient regulatory capital. It is also willing to put additional capital in the merged entity to support credit growth. Both the government and the regulator have done well to initiate the process in a synchronised manner — the RBI announced the amalgamation scheme within minutes of the government putting the bank under moratorium. This contained the damage to a large extent. Further, writing off the existing equity sends a strong signal to shareholders in banks that they could be the biggest loser in the case of mismanagement. The RBI has also done well by sending a strong signal that it wants control of banks in strong hands. That explains its decision to allow the Indian subsidiary of a foreign bank to take control of LVB.
TO READ THE FULL STORY, SUBSCRIBE NOW NOW AT JUST RS 249 A MONTH.
Already a premium subscriber? LOGIN NOW
SUBSCRIBE TO INSIGHTS
What you get on Business Standard Premium?
- Unlock 30+ premium stories daily hand-picked by our editors, across devices on browser and app.
- Full access to our intuitive epaper - clip, save, share articles from any device; newspaper archives from 2006.
- Curated newsletters on markets, personal finance, policy & politics, start-ups, technology, and more.
- Pick your 5 favourite companies, get a daily email with all news updates on them.
- 26 years of website archives.
- Preferential invites to Business Standard events.