‘RBI could have dealt with Lakshmi Vilas Bank in open manner than quietly handing it over free of cost to DBS’

The Reserve Bank of India (RBI) could have started a competitive process for the 94-year-old Karur based Lakshmi Vilas Bank (LVB) so that a proper valuation of the bank could have been arrived at, said one of the promoters of LVB.

The RBI could have dealt with LVB in an open manner than deciding to hand it over "free of cost in a hush-hush manner" to DBS Bank India, he said.

He also said Lord Venkataramana Swamy at Thanthonimalai being the first shareholder, will be the first loser in the RBI proposed deal.

"The shareholder folio number 1 is in the name of the Lord Venkataramana Swamy the presiding deity at the famed temple in Thanthonimalai (in Tamil Thanthondrimalai -- mountain that appeared on its own)," KR Pradeep one of the promoters of LVB told IANS.

"Without a depositors run on the bank, no risk of increased lending and the bank facing no crisis the RBI need not have decided to give the LVB free of cost to DBS Bank India a wholly-owned subsidiary of DBS Bank Ltd, Singapore, without any bidding raises several questions," Pradeep said.

"The RBI could have asked the boards of LVB and DBS Bank India to come out with a merger plan that is acceptable to all. The RBI could have started a competitive process so that a proper valuation could have been derived," Pradeep added.

On Tuesday when RBI announced palming of LVB to DBS Bank India the market capitalisation of the bank was Rs 600 crore, Pradeep said.

According to him, if all shareholders of a bank lose money then who will invest in the banking sector.

As per the draft amalgamation scheme, the RBI has said on and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank (LVB), shall stand written off.

On and from the appointed date, the transferor bank shall cease to exist by operation of the scheme, and its shares or debentures listed in any stock exchange shall stand delisted without any further action from the transferor bank, transferee bank (DBS Bank India) or order from any authority.

The LVB has a network of 563 branches while DBS Bank India has only 33. The amalgamation will give a jump start for DBS Bank India with a ready made branch network.

Pradeep said all the South India based private banks are thin on capital. The shareholders of Yes Bank did not lose and the beleaguered housing finance company Dewan Housing Finance Company Ltd is getting revised offers from suitors.

According to Pradeep, RBI should revisit LVB's valuation.

"If LVB is handed over free of cost a bank owned by Government of India then it is understandable, but handing it over to a foreign bank is strange," Pradeep said.

A Chartered Accountant by profession Pradeep said LVB's networth is positive. The provision coverage is about 80 per cent and the capital erosion is due to provisions.

"In 1-3 years when the loans are recovered then these provisions will be reversed. When that happens it is DBS Bank India which would unduly benefit," Pradeep said.

"Nearly 50 per cent of the Rs.3,500 crore provisions will be reversed in couple of years time. It will be a bonanza for DBS Bank India," he added.

According to him, market access to a foreign bank need not be given easily.

"There are Japanese, Korean banks wanting to expand their operations in India. They could have been sounded out," Pradeep added.

Queried about the assets of LVB, Pradeep said apart from own buildings, the bank has the pledged assets by borrowers.

"The assets of the borrowers taken over by LVB have realisable monetary value. This seems to be not taken into account by RBI," Pradeep added.

"The Clermont Group had offered $300 million for 60 per cent stake in LVB in March 2020 and reiterated it in July 2020. Nobody offered to pay zero money to take over LVB. In my view the bank should get a valuation of about Rs 1,500 crore to Rs 2,000 crore," Pradeep remarked.

According to him, the institutional shareholders like Life Insurance Corporation of India and other insurance companies will have to take a call on the matter and take it up with the authorities.

Pradeep said LVB did not approach any other bank to take it over as the bank should continue to exist. Instead the management were discussing with non-banking finance companies (NBFC) which would merge into LVB.

He said he would send his objections to RBI against offering LVB a strategic asset free of cost to DBS Bank India.