Money & Banking

RBI’s resolution of LVB will help maintain stability in banking system: S&P Global Ratings

Our Bureau Mumbai | Updated on November 19, 2020 Published on November 19, 2020

‘RBI’s decision to consider a foreign bank...to bail out LVB demonstrates its willingness to put control of banking assets in foreign entities’

S&P Global Ratings on Thursday said the Reserve Bank of India’s swift resolution of troubled Lakshmi Vilas Bank will help maintain stability in the banking system.

 

“S&P Global Ratings believes this deal is positive for India’s banking sector and will bring much-needed relief to LVB, which has been struggling for many years,” it said in a statement, adding that it has always believed the Indian government as highly supportive of the banking sector.

The government has consistently supported weak commercial banks by promoting the merger of distressed institutions with stronger lenders, it noted.

Also read: Lakshmi Vilas Bank bailout: A plum deal for DBS may nudge other foreign banks too

“In our view, the RBI’s decision to consider a foreign bank, beyond just homegrown institutions, to bail out LVB demonstrates its willingness to put control of banking assets in foreign entities,” it further said.

The global rating agency further said that the acquisition of LVB will not materially affect the financial position of DBS.

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“LVB is small when compared to DBS, accounting for less than 1 per cent of the group’s total assets,”it said, adding that LVB will significantly expand DBS Bank India Ltd’s (DBIL) footprint in India.

Also read: RBI places Lakshmi Vilas Bank under moratorium: Are your deposits safe?

The merger could provide DBIL with a meaningful physical presence, which we believe is needed to complement the digital strategy the bank is already pursuing in India, it noted, adding that LVB will also help DBS penetrate deeper into the southern parts of India.

As of September 30, 2020, LVB had 563 branches, compared with DBIL’s 27 branches.

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Published on November 19, 2020
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