Development Bank of Singapore (DBS) will strengthen its Indian business following merger with troubled Lakshmi Vilas Bank, Moody Investors Service mentioned. Reserve Bank of India declared a layout to amalgamate the unsettled Lakshmi Vilas Bank (LVB) into DBS Bank India, which is fully controlled by DBS Bank Ltd.
Moody’s stated that the merger will add new retail and small and medium-sized customers to the DBS business strengthing its position in India. They had estimated that DBS India’s consumer deposits and a total number of loans would multiply by about 50 percent to 70 percent through this union. Lakshmi Vilas Bank (LVB) also add around 500 branches to the existing 27 branches of DBS India. According to Moody’s report, India is one of the priority markets of DBS, and the merger will fit perfectly with its strategy for expansion.
Global rating agency estimated that the merger would enhance DBS net loans in India to around 1.5 percent of company loans, from 0.9 percent on June 30, 2020. DBS net loan disclosure in India will continue to be small and will not change the company’s credit profile. Moody indicated that India and Indonesia are the core foreign markets of DBS, where their digital banking services are growing vigorously and where they have more than 3 million digital bank users in these two markets. The acquisition will assist DBS in complement established physical branch banking with its digital strategy in India.
Lakshmi Vilas Bank (LVB) would strengthen retail enterprises and SME (small and medium enterprises) clients to DBS Bank India mostly corporate and SME-focused loan book. RBI has launched a moratorium on payments to large depositors and creditors of the LVB till December 16 this year. Development Bank of Singapore (DBS) will be investing around USD 345 million in LVB capital as the basis of the planned amalgamation scheme. The acquisition will positively impact the depositors and senior creditors of LVB because the bank will get support from the strong parental support from DBS Bank Ltd.
The Indian government newly gave powers to the Reserve Bank of India (RBI) to settle a bank without generating a moratorium. The LVB retrieval process emphasizes the drawbacks in India’s bank resolution mechanism as the moratorium prohibits full and timely contributions to depositors and creditors, thereby leading to a short bankruptcy by the bank.