A day before its merger with the Indian arm of Singapore-based DBS Bank, debt-laden Lakshmi Vilas Bank (LVB) on Thursday wrote off bonds worth Rs 318.20 crore as per existing provisions.
As per the effective date of the merger notified by the Reserve Bank of India (RBI) on Wednesday, Lakshmi Vilas Bank will lose its identity on Friday by merging with DBS Bank India Ltd.
The RBI, in its letter on Thursday, has advised the need to fully redeem the Level 2 Grievance Bonds Series VIII, Series IX and Series November), Lakshmi Vilas Bank said in one of its latest communications to the stock exchanges.
“If the relevant authorities decide to reconstitute the bank or merge it with any other bank under Article 45 of the Banking Regulation Act, such bank will be considered non-viable and both the pre-established trigger and the trigger at the moment The non-viability point will be activated for the amortization of bonds.
“Accordingly, the bonds will be redeemed prior to the merger or reconstitution in accordance with applicable standards,” according to the terms of the information memorandum of the respective Basel III Tier 2 bonds issued by the bank.
In light of the above provision, such Basel III Tier 2 bonds would have to be fully redeemed before the bank merger comes into effect, Lakshmi Vilas Bank said quoting Thursday’s letter from the RBI.
On Wednesday, the RBI notified the effective date of the merger on November 27, soon after the Union Cabinet headed by Prime Minister Narendra Modi approved the Merger Plan of LVB with DBS Bank India Ltd (DBIL).
The RBI had replaced the LVB board on November 17 after the private sector lender was placed under a 30-day moratorium restricting cash withdrawals to Rs 25,000 per depositor.
At the same time, the RBI put in the public domain a draft merger plan of Lakshmi Vilas Bank with DBIL.
Founded by a group of seven businessmen from Karur in Tamil Nadu under the leadership of VSN Ramalinga Chettiar in 1926, LVB has 566 branches and 973 ATMs spread across 19 states and Union Territories.
With non-performing assets skyrocketing, the bank was brought under the Reserve Bank of India’s (RBI) immediate remedial action framework in September 2019.
LVB is the second largest private sector bank after Yes Bank, which has fallen on hard times this year.
In March, capital-starved Yes Bank was placed under moratorium. The government bailed out Yes Bank by asking State Bank of India (SBI) to pump in Rs 7,250 crore and take a 45 per cent stake in the lender.
The story has been taken from a news agency.