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NEW DELHI: Shares of Lakshmi Vilas Bank (LVB) plunged in Wednesday's session, hitting their lower circuit limit of 20 per cent at Rs 12.40 after the RBI said DBS Bank India will take over the ailing bank.
The Singapore-government backed lender edged out private equity backed Clix Capital and will invest as much as Rs 2,500 crore in equity to stabilise the combined entity with a capital adequacy of 12.5 per cent.
"Given the small size of LVB, the RBI seems to have chosen the route of amalgamation with another foreign private bank instead of a unique restructuring scheme as in the case of YES Bank where investors including banks were called upon to infuse capital and thus revive it independently," said Emkay Global.
The brokerage said the extinguishment of capital and reserves and merger with an unlisted bank will be negative for minority investors in LVB and would be in the larger interest of depositors.
The deal would be positive for DBS Bank which has 33 branches and which would get access to LVB's 563 branches. The development would put to rest concerns around a potential merger with a healthy large private bank as it has been the case in the past for example Bank of Rajasthan with ICICI Bank.
The government has, meanwhile, placed the bank under moratorium till December 16 and imposed a Rs 25,000 withdrawal limit. TN Manoharan has been appointed as the administrator of the bank.
The Singapore-government backed lender edged out private equity backed Clix Capital and will invest as much as Rs 2,500 crore in equity to stabilise the combined entity with a capital adequacy of 12.5 per cent.
"Given the small size of LVB, the RBI seems to have chosen the route of amalgamation with another foreign private bank instead of a unique restructuring scheme as in the case of YES Bank where investors including banks were called upon to infuse capital and thus revive it independently," said Emkay Global.
The brokerage said the extinguishment of capital and reserves and merger with an unlisted bank will be negative for minority investors in LVB and would be in the larger interest of depositors.
The deal would be positive for DBS Bank which has 33 branches and which would get access to LVB's 563 branches. The development would put to rest concerns around a potential merger with a healthy large private bank as it has been the case in the past for example Bank of Rajasthan with ICICI Bank.
The government has, meanwhile, placed the bank under moratorium till December 16 and imposed a Rs 25,000 withdrawal limit. TN Manoharan has been appointed as the administrator of the bank.
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