Small shareholders of Laxmi Vilas Bank in trouble due to negligent attitude of RBI

There are 98,000 shareholders in the bank. Out of them, there are 96,380 small shareholders who own stake worth less than Rs 2 lakh in the bank

Small shareholders of Laxmi Vilas Bank in trouble due to negligent attitude of RBI
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Kumud Das

Shareholders of Laxmi Vilas Bank (LVB), on which a moratorium was imposed by RBI on Tuesday, are likely to be shown the door. Even as the new promoter, DBS Bank, has made an announcement of infusing Rs 2500 crore in the merged entity, nobody is talking of what will happen to the huge money put by these small shareholders.

RBI has placed the private sector lender under moratorium for 30 days and proposes to merge the bank with DBS Bank. Moreover, the regulator has capped deposit withdrawals by customers to Rs 25,000.

There was no swap arrangement for Global Trust Bank (GTB) shareholders when the private sector bank was amalgamated with the state-run lender Oriental Bank of Commerce (OBC) in 2004.

The RBC issued a Moratorium Order on 24 July 2004. Before GTB's winding up, Goldman Sachs owned 4% of the bank and the IFC owned 5%. OBC acquired GTB on 14 August 2004. Shareholders in GTB received nothing for their shares; depositors, however, suffered no loss.

Even though RBI was fully aware of the problems brewing up in the bank, it kept mum over the entire issue. And now came its statement that there is nothing for the shareholders to get out of the merger process. There are 98000 shareholders in the bank. Out of them, there are 96,380 small shareholders who own stake worth less than Rs 2 lakh in the bank. These shareholders hold 8.07 crore shares in the bank with them.

According to the banking regulator, the private sector lender has seen a steady decline in its financials, incurring losses over the last three years.

“In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses,” an RBI statement said.

The disgruntled shareholders of the bank are now in a mood to challenge the regulator's move to wipe out their equity in the merger plan with DBS Bank India. In their objections to the Reserve Bank of India (RBI), shareholders will demand fair valuation and a stake in the new merged entity.

All of the bank's equity, including the shareholding of Indiabulls Housing Finance NSE (4.99%), Srei Infrastructure Finance (3.34%), Capri Global (3.82%) and promoter ownership of 6.8%, as well as stakes held by retail investors, are set to be extinguished as the draft scheme of amalgamation says that the entire paid-up capital of the bank will be written off.

"The proposed amalgamation will provide stability and better prospects to Lakshmi Vilas Bank's depositors, customers and employees following a time of uncertainty. At the same time, the proposed amalgamation will allow DBL NSE 0.62 % to scale its customer base and network, particularly in South India, which has longstanding and close business ties with Singapore," DBS said in a statement.

Similar is the case in the matter of PMC Bank too. RBI was yet to come up with its plan what to do with the cooperative bank which has got concerns of thousands of shareholders.

All India Bank Employees Association (AIBEA) has been raising a demand to merge LVB with a public sector bank, which was completely ignored by the banking regulator.

According to CH Venkatachalam, general secretary, All India Bank Employees’ Association (AIBEA), “to merge LVB with a public sector bank for the past three years and more, the Tamil Nadu based private sector Lakshmi Vilas Bank has not been in good health, rather, it was suffering from bad health and continuous loss.”

The reason is well known to all including RBI.

The then management of the bank had indulged in a lot of bad loans of more than Rs 2000 crores to borrowers like Religare, Jet Airways, Cox and Kings, Nirav Modi group, Coffee Day, Reliance Housing Finance, etc. All these undesirable loans were known to RBI as it had its nominee as Director on the Board of the Bank.

Unfortunately, a very long rope has been given to the bank and now, the RBI has announced moratorium, he added.

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