LVB-DBS Bank India merger- 7 significant highlights RBI must look into!

Mumbai, November 25: Swadeshi Jagaran Manch, a sister organization of the Rashtriya Swayamsevak Sangh has opposed the Reserve Bank of India’s draft scheme for the merger of Lakshmi Vilas Bank (LVB) with the wholly-owned subsidiary of Singapore based DBS Bank in India. It has also urged the banking regulator to re-examine the proposed deal.

 

In a letter addressed to the RBI governor Shaktikanta Das, Swadeshi Jagaran Manch (SJM) said that the proposed scheme of amalgamation is not transparent and is a ‘back-door entry to a foreign banking entity into the Indian market’. “While the Swadeshi Jagaran Manch appreciates the intent of the RBI to protect the depositors’ in LVB, we believe the same end could be achieved without compromising national interests. The proposal is not transparent and it appears to be circumventing RBI’s own practices till now, casting a shadow on the fair name of the Reserve Bank of India," it said in a letter.

 

 

 

1. DBS India acquires LVB for zero payment. In return, DBS takes over LVB as-is-where-is including the losses caused by the troubled loans. DBS, a foreign entity, gets the 563 branch network of LVB for free, 1000 ATMs, and access to 2 million customers of LVB. This is clearly a back-door entry to a foreign banking entity into the Indian market, overlooking many of RBI’s own rules in branch expansion of foreign banks.

 

2. DBS is stated to be injecting Rs 2,500 crores in its own Indian subsidiary to enhance its capital to absorb LVB. The point to note is that the money is coming into DBS India, and not into the troubled LVB. DBS is not paying any price for the acquisition. For this piffling amount being brought into their own subsidiary, DBS is gaining access to the LVB deposits reported to be in excess of Rs 20,000 crores of Indian money.

 

3. The RBI-appointed Administrator of LVB is on record that the deposits are safe, with the bank having adequate liquidity. The ideal resolution for any distressed commercial entity should entail a comprehensive valuation exercise, transparent invitation of bids from interested parties and final decision involving key stake holders that maximizes the value. The RBI has not followed due process in this case. Why?

 

4. Why is LVB being merged now with a foreign bank? Is this the new policy of the RBI and the Government of India? If so, this should be debated and its implications examined thoroughly in the national interest. Why is the RBI changing fundamental policy without transparency? What has been proposed is contrary to the Atmanirbhar Bharat direction of the Prime Minister.

 

5. When an Indian bank is merged with a foreign bank, it is immediately exposed to the risks of the foreign bank. If the foreign bank fails, and Indian depositors get impacted, will the RBI be involved in a rescue act of the depositors? Why should the RBI expose the Indian public to these unknown risks?

 

6. In the recent case of YES Bank, the RBI resolved the matter of recapitalization with contributions from SBI, LIC, HDFC, ICICI, Kotak and others to the tune of Rs 12,000 crores. The value of this investment has already gone up. Likewise the RBI can surely raise the few thousand crores (if at all that much) from Indian sources and recapitalize LVB and bring it back to healthy functioning. The Indian capital that is brought in will surely increase in value in a short time. Why this not being done and foreign capital is favoured?

 

7. Did the RBI examine a merger with similar institutions like Indian Bank which is a strong PSB, or private banks or strong NBFCs? When there are good options available in India, why this haste to subvert long-established RBI practices in favour of an overseas entity?

 

An ideal resolution for any distressed commercial entity should entail a comprehensive valuation exercise, transparent invitation of bids from interested parties and final decision involving key stake holders that maximizes the value, SJM said, alleging that RBI has not followed due process in this case. “We request the RBI to be transparent in this matter and to re-examine the proposed LVB merger with DBS. We are confident that the RBI will find a wholly Indian solution to this issue, protect the interests of depositors and bring LVB back to being the strong community institution that it has always been," it said.