LVB-DBS Bank India merger approved by Union Cabinet — ‘those who have made mistakes will be punished’

• India’s Union Cabinet has approved the merger of the troubled Lakshmi Vilas Bank (LVB) with DBS Bank India.
• “This is a part of the clean up that was required in the banking sector,” said Union Minister Prakash Javadekar during the press conference.
• He also revealed that the members of the board, who have now been removed, will be held accountable and there will be liability for those found to have made mistakes.
  

The merger of the troubled Lakshmi Vilas Bank (LVB) with DBS Bank India has been approved by the Indian government’s Union Cabinet. Union Minister Prakash Javadekar said the ₹20,000 crore deposit of the 20 lakh customers is now safe.

“Customers need not rush to banks to withdraw their money. However, whoever does wish to withdraw can now do so at any time in a safe way,” he said during the press conference.

He also revealed that those members of the board who were responsible for the mistakes will be held accountable. “Those who have made mistakes, will be punished. There will be improvement in overall oversight also so as not to repeat such incidents in the future,” Javadekar explained.

Resolving the LVB crisis
On the fateful night of November 17, LVB was put under a one-month moratorium with withdrawals capped at ₹25,000 per account holder by the Reserve Bank of India (RBI). India’s apex bank also announced that due to lack of a potential bank for capital infusion, LVB will now be merged with DBS Bank India, a subsidiary of Singapore’s DBS.

“This is a part of the clean up that was required in the banking sector,” said Javadekar.

While some have praised the RBI’s decisiveness, others like the head of the All India Bank Employees’ Association (AIBEA) and one of the bank’s promoters have raised the red flag on the central bank’s decision. The primary concern to these queries is why other bids were not considered for the merger of LVB.

The former Chairman of Canara Bank and the man appointed by the RBI to lead the bank during the moratorium period, TN Manoharan, assured the press that there is no run on the bank a day after taking over.

Manoharan predicted that the lifting of withdrawal limits and the lifting of moratorium to be coterminal.

If this holds true, RBI’s handling of the LVB crisis will be considered at par with its swift handling during the Yes Bank scam. On the other hand, the PMC bank crisis remains unresolved — leaving its depositors in the lurch, even today.

The street view
Meanwhile, in the stock market, LVB’s share price continued to plummet for the seventh consecutive day on November 25. The stock has lost more than half of its value — around 55% — since the moratorium was announced on November 17.

“In our view, the merger of LVB with DBS Bank, which is trying to expand its base in India, will be a long-term positive for the latter,” said Emkay Research in its report dated November 18.

However, the analysts also point out that there is a flip side. Since LVB will now be delisted from the stock market, it will be a negative move for the minority investors in the company.

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