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The Union Cabinet on Wednesday approved the merger of Lakshmi Vilas Bank (LVB), which is struggling with the financial crisis, into DBS India Bank. DBS India is a unit of DBS Bank of Singapore and this is the first time the government has approved merger of a foreign bank with an Indian entity to protect a private bank.
With the merger, restrictions on withdrawing money from LVB have also been removed.
The background
LVB was facing economic crisis due to these reasons
LVB had been facing economic crisis for a long time due to problems related to non-payment and administration of customers and the amount of unpaid loans had become 23.27 percent of its assets.
To get out of this crisis, the bank had also proposed a merger with Indiabulls Housing Finance last year, but the Reserve Bank of India did not approve this merger.
RBI had proposed merger with DBS India on 17 November
In order to save LVB from drowning, RBI proposed its merger with DBS India Bank on 17 November itself. Same day central government Had imposed a month-long moratorium on the bank and banned customers from withdrawing more than Rs 25,000 a month.
Now the central government has approved the RBI proposal and the way for the merger of the two banks has been cleared.
DBS India to invest Rs 2,500 crore in LVB
As per the merger plan, DBS India will invest Rs 2,500 crore in LVB. In addition, the entire share capital and reserves and surpluses will be scrapped. These steps are expected to improve LVB’s position.
Prakash Javadekar said – Government’s commitment towards clean banking system shows decision
Union Minister stating the decision of the Union Cabinet to approve merger of banks Prakash Javadekar Stated that the solution to this matter reflects the government’s commitment to a clean banking system along with protecting the interests of depositors, the public and the financial system.
He said that this decision of the government would provide relief to the 20 million LVB depositors and about 4,000 employees, who were feared to have lost their jobs.
Other mergers
RBI has forcibly merged banks earlier also
Let us know that the RBI has also forcibly merged banks in case of need before. Earlier, it merged IDBI Bank and United Western Bank in September 2006, while in 2004 Global Trust Bank was merged with Oriental Bank of Commerce.
However, this is the first time that the RBI has approved the merger of a foreign bank with an Indian entity to save a private bank in crisis.
Last update
Nov 25, 2020, 05:13 pm
