By now, you probably have heard about India’s central bank proposing a scheme to merge the ailing Lakshmi Vilas Bank (LVB) with DBS Bank.
Many investors have been crying foul about the bad deal etc. On the analysts side, there have been a mixed reaction as shown from the Biz Times article here.
But on an objective note, here’s 4 key things investors need to know about the proposed DBS – Lakshmi Vilas Bank (LVB) merger (there are plenty of snippets from various sources below and you can refer to the url links posted at the end).
This post was originally posted here. The writer, James Yeo is a veteran community member and blogger on InvestingNote, with a username known as @Smallcapasia and has 913 followers.
1) What led to DBS – Lakshmi Vilas Bank (LVB) merger?
This is believed to be the first time that the India central bank has turned to a foreign lender to rescue a failing local bank, in a move that took the industry by surprise.
Lakshmi Vilas Bank has been struggling with financial decline and red ink for the past three years. It incurred a loss of around $150 million in the 12 months to March 31. Its net worth has also shrunk while unpaid loans have increased.
India’s central bank advised LVB in September last year to reduce bad assets and bring in new capital.
However, after many months of futile discussion talks and sensing that things are deteriorating, The central bank stepped in to bail them out.
RBI (Reserve Bank of India) then did the following on 17 Nov 2020:
- Imposed a one-month moratorium on LVB
- Capped deposit withdrawals at 25,000 rupees and
- Unveiled the proposed merger with DBS soon after.