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market | IST

Lakshmi Vilas Bank shareholders may not be as lucky as Yes Bank shareholders: Here's why

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As per the terms of the draft scheme of amalgamation announced by RBI, shareholders of Lakshmi Vilas Bank may get nothing out of its proposed merger with DBS Bank India.

Shareholders of Lakshmi Vilas Bank may get nothing out of its proposed merger with DBS Bank India Ltd (DBIL), according to the terms of the draft scheme of amalgamation announced by the Reserve Bank of India.
The draft scheme says, “On and from the appointed date, the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank, shall stand written off.”
Also, “On and from the appointed date, the transferor bank shall cease to exist by operation of the scheme, and its shares or debentures listed in any stock exchange shall stand delisted without any further action from the transferor bank, transferee bank or order from any authority.”
While depositors interest will be protected after DBS Bank India takes over the bank, Lakshmi Vilas Bank’s shareholders may be left in the lurch if the draft scheme is implemented in its current form.
This is unlike the case of Yes Bank, the other major bank to have been placed under similar restrictions in March this year. In the case of Yes Bank, SBI and other lenders infused capital to acquire stake in the bank by expanding the capital base. This meant that Yes Bank retained its identity, remained listed on exchanges, and did not have to be absorbed into any other financial institution. Some traders who were long on Yes Bank futures got an unexpected windfall because of the rule limiting the number of shares that Yes Bank shareholders could sell after the bank was restructured.
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While the share capital got significantly diluted, Yes Bank’s shareholders continued to hold its shares, with the promise of an upside in future if the bank is able to recoup its losses.
That would not be the case with Lakshmi Vilas Bank shareholders, if the draft scheme is implemented.
Lakshmi Vilas Bank has has undergone a steady decline, incurring continuous losses over the last three years, eroding its net-worth, RBI said.
“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,” the regulator said.
RBI added that the bank is also experiencing continuous withdrawal of deposits and low levels of liquidity, and has also experienced serious governance issues and practices in the recent years which have led to deterioration in its performance. All of this necessitated the bank being brought under moratorium.
Lakshmi Vilas Bank shares last closed at Rs 15.06 apiece on Tuesday.