Mumbai: The merger between Singapore’s DBS Bank and old generation private sector lender Lakshmi Vilas Bank (LVB) has caught existing investors on the wrong foot as the value of their holding will be written off since shares of LVB will be delisted. Large institutional investors now plan to approach the Reserve Bank of India (RBI) opposing the move, ThePrint has learnt.
On Tuesday, after putting LVB on moratorium with withdrawals capped at Rs 25,000, the RBI announced a draft scheme for amalgamation of LVB and DBS India Ltd (DBIL) — the wholly owned subsidiary of DBS, Singapore.
According to the draft scheme of amalgamation, “The transferor bank (LVB) shall cease to exist by operation of the scheme, and its shares or debentures listed in any stock exchange shall stand delisted.”
Speaking about this, an institutional investor said any move that “hinders the principles of natural justice should be avoided”.
“The shareholders and investors have stood by the bank during its crisis period and their interest should also be protected. In fact, in several old generation private banks, many depositors are also the shareholders. Hence, we would urge RBI to reconsider the proposal of writing off the paid-up share capital and reserves, which would affect both retail and institutional shareholders of the bank,” said the investor, who did not wish to be named.
These shareholders have suggested other options for the resolution of the stressed lender including a bidding process from prospective suitors.
“The regulator can also appoint an independent valuer to arrive at a fair valuation and prevent wealth erosion of shareholders, who had no role to play in the day to day management of the bank,” the investor added.
While announcing the draft scheme, the RBI has sought feedback on the scheme by 20 November.
After Tuesday’s development, several brokerages warned small investors from buying shares of LVB stating that there is a risk the value will become zero.
LVB shares tanked 20 per cent to close at Rs 12.40 on the Bombay Stock Exchange (BSE) Wednesday.
RBI should review moratorium
Shakti Sinha, a former board member of LVB who was appointed by the RBI in September after the shareholders voted out seven board members including the chief executive officer and managing director, said there was no need for the restrictions on deposit withdrawal and that cap should be removed as soon as possible by the RBI.
“Liquidity is not the issue with LVB unlike Yes Bank of PMC Bank. Yesterday, the liquidity coverage ratio was 240 per cent. The liquidity coverage ratio actually improved in the last two months,” Sinha said.
“There was no need for a moratorium. RBI should review it as soon as possible.”
Sinha also said the bank has made good recovery in the last two months. “Upgradation and recovery in the last 52 days (since the new board members were appointed) was Rs 50 crore. We also did one-time settlements with big NPA cases. We expect Rs 150 crore to Rs 200 crore coming into the bank in the next three months. That should be very good news for DBS.”
He added the merger process will take at least nine months to complete.
What the new LVB administrator says
After the bank was put on moratorium, the banking regulator has superseded the earlier board and appointed T.N. Manoharan as LVB administrator.
“There has been no run on the bank,” Manoharan said during a media interaction Wednesday. The bank has seen some erosion in its deposit base since September which came down by around Rs 900 crore to Rs 20,050 crore.
“This is the shortest possible duration for which moratorium has been imposed. The sense I am getting is that we may not have to wait till 30 days, hopefully this (the deal) should crystallise much before,” Manoharan said.
One of the key challenges for merger is going to be technological integration. This is because the core banking solution of LVB is on the upgraded version of Flexcube platform while DBS India is on Finacle.
Since DBS has only 34 branches as compared to 563 of LVB, it is to be seen whether DBS continues to be on the same platform or migrates its system to Flexcube.