In a sudden turn of events, some hours before the amalgamation of the Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd is to take effect, the Reserve Bank of India (RBI) on Thursday gave a Rs 318.20 crore relief to DBS Bank.
The RBI wrote to LVB's Administrator on Thursday to write down Rs 318.20 crore worth of Unsecured Non-convertible Redeemable Fully Paid-up Basel III compliant Tier-2 Bonds before the scheme of amalgamation comes into effect on November 27. The LVB had raised the money through Basel III Tier 2 bonds in three tranches.
The RBI cited the Information Memorandums of respective Basel III Tier 2 bonds issued by the LVB while communicating its decision to the LVB.
"If the relevant authorities decide to reconstitute the Bank or amalgamate the Bank with any other bank under Section 45 of the BR Act (Banking Regulation Act), such a bank shall be deemed as non-viable or approaching non-viability and both the pre-specified trigger and the trigger at the point of non-viability for write-down of the Bonds shall be activated. Accordingly, the Bonds shall be written-off before amalgamation/reconstitution in accordance with applicable rules," the RBI told T.N. Manoharan, Administrator of the LVB.
According to the RBI, as Section 45 of the Banking Regulation Act has been invoked and the amalgamation scheme has been notified, the LVB is deemed to be non-viable or approaching non-viability and accordingly, the triggers for a write-down of Basel III Tier 2 bonds issued by the bank has been triggered.
"In light of the above provisions, such Basel III Tier 2 bonds would need to be fully written down before the amalgamation of the bank comes into effect," RBI said in its letter.
The Central Government, in its notification, had written off the entire amount of the paid-up share capital and reserves and surplus, including the balances in the shares or securities premium account of the transferor bank and the delisting of the shares and debentures.
As a result, the shareholders of the LVB will not get anything for their shares.