Money & Banking

LVB amalgamation could help DBS Bank India expand footprint

Surabhi Mumbai | Updated on November 18, 2020 Published on November 18, 2020

Strong position of DBS could give certainty to LVB

The proposed amalgamation of troubled Lakshmi Vilas Bank with DBS Bank India would help the latter expand its footprint in the country.

Though it has been present in India for 26 years, and was one of the large foreign banks in India to start operating as a wholly owned, locally incorporated subsidiary in the country, DBS Bank India has had a largely limited presence. However, it has ramped up its digital presence significantly.

It has a digi-banking platform and has been announcing a number of digital innovations, including digital business loans for small and medium enterprises (SMEs). It is present in 24 cities and has been keen on ramping up its operations and expanding its customer base.

The lender has been looking to focus more on SMEs and retail customers, as well as expanding into Tier-II and below cities.

ALSO READ: Why the RBI stepping in to bail out LVB was long awaited

Strong financials

Soon after the announcement by the Reserve Bank of India of the proposed amalgamation, DBS said it will inject ₹2,500 crore into DBS Bank India (DBIL) if the scheme is approved. “This will be fully funded from DBS’ existing resources,” it said in a statement.

DBS Bank India has a strong balancesheet, which would also give comfort to depositers of stressed LVB.

DBS Bank India had reported an over six-fold increase in its net profit to ₹111 crore in 2019-20 with gross NPAs at 2.6 per cent.

The RBI has sought comments on the proposed amalgamation by November 20.

ALSO READ: RBI places Lakshmi Vilas Bank under moratorium: Are your deposits safe?

LVB in distress

LVB, on the other hand, has a more extensive network with 563 branches, five extension counters, around 974 ATMs and CDMs in about 16 States and three Union Territories.

The stressed lender reported a net loss of ₹396.99 crore during the second quarter this fiscal as against a net loss of ₹357.17 crore in the corresponding period last fiscal. Its Gross NPA stood 24.45 per cent as on September 30, 2020, as against 21.25 per cent a year ago.

The auditor’s note with the second-quarter results had highlighted that the bank needs to “take urgent effective steps to augment its capital base in the year 2020-21”.

“There has been a steady decline in the bank’s deposit base since September 2019 and increase in the NPA ratios,” it ahd said, adding that its Tier-I Capital ratio has turned negative.

LVB had been in discussions with Clix Capital for a long time for a probable stake sale, and had just last month announced that it received an indicative non-binding offer from Clix Group. However, the slow pace of discussions could have posed a challenge.

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Published on November 18, 2020
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