(Bloomberg) -- A struggling Indian bank being acquired by DBS Group Holdings Ltd. will write off 3.18 billion rupees ($43 million) of bonds before being purchased by the Singaporean group.The Reserve Bank of India, which orchestrated the rescue, “has advised the need to fully write down” the Tier-2 debt, Lakshmi Vilas Bank Ltd. said in an exchange filing Thursday. The planned take over triggered the move, it said.While Lakshmi Vilas’s stocks and debentures were to be delisted as part of the deal, the administrator appointed by the Reserve Bank after it seized the lender had said last week that DBS would take over all obligations including bonds and no jobs would be cut. “To my knowledge this is the first time in at least 20 years that Tier-2 bonds have been written down,” said Shameek Ray, head of debt capital markets at ICICI Securities Primary Dealership Ltd. “It is a good step by the RBI as it underlines the sanctity of the point of non-viability. No investor can take their capital holding in a weak private bank for granted.”The deal is the first time Indian authorities have turned to a foreign lender to bail out a local rival, as they try to shore up a financial industry that has suffered a series of shocks. Trading in Lakshmi Vilas’s shares were suspended Thursday though depositors will be protected.DBS’s Indian unit will pump in 25 billion rupees in fresh capital into Lakshmi Vilas Bank.(Updates with details throughout. A previous version of this story corrected FX conversion in headline and lead)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
DBS Group's move to take over troubled Lakshmi Vilas Bank will give Southeast Asia's largest lender the boost in India it has long desired, but aligning the two banks' business cultures could prove tricky. LVB, facing mounting bad loans and governance issues and a failure to secure capital, is set to be folded into DBS's Indian subsidiary under a plan proposed by India's central bank, which took control of the 94-year old Chennai-based lender on Tuesday, citing a "serious deterioration" in its finances. The plan will accelerate Singapore-based DBS's expansion ambitions in India and potentially transform it from a largely digital bank in the country to one with hundreds of branches.
(Bloomberg) -- DBS Group Holdings Ltd. will take over India’s Lakshmi Vilas Bank Ltd. in a deal orchestrated by the nation’s central bank, the first time authorities have turned to a foreign lender to bail out a struggling local rival.Shares of Lakshmi Vilas tumbled after the Reserve Bank of India said its stock and debentures would be delisted and ordered a 30-day moratorium as part of the proposal to stem a steady decline of depositors and a rise in bad loans. Singapore-based DBS’s Indian unit will pump in 25 billion rupees ($336 million) in fresh capital, the central bank said in a statement Tuesday.“Not one rupee of depositors is at risk,” said T N Manoharan, the RBI appointed administrator of the bank. Restoration of credit growth will be the priority for the bank after the merger is complete, he said.Read about latest bank rescue a more creditor-friendly pathThe move is the latest effort by Indian authorities to shore up a financial industry that’s suffered a series of shocks since the outbreak of a shadow banking crisis in 2018. Lakshmi Vilas is the second lender this year to require a rescue. Prime Minister Narendra Modi’s administration is counting on the nation’s banks to help end an unprecedented recession triggered by the coronavirus pandemic.The RBI’s decision signals the central bank’s flexibility in trying new models which augurs well for resolution of weak banks in future, said Anand Sinha, former deputy governor at RBI in charge of banking regulation.“It is important to widen the net so that there are more strong candidates to takeover weak banks,” said Sinha who retired in January 2014 from the central bank.Read why India’s financial sector keeps blowing upThe proposed amalgamation will provide stability to Lakshmi Vilas’ depositors, customers and employees following a time of uncertainty, DBS said in a statement. The acquisition fits with DBS CEO Piyush Gupta’s long-standing ambitions to grow in a large emerging market, giving it a lender with more than 500 branches. DBS has 27 offices in the country. Still, it faces a challenge to turn around the loss-making bank.“We aren’t particularly optimistic on the ability of any foreign players to do well in India but this may be the ‘bitesized’ approach for DBS to push the agenda harder,” said Sanford C. Bernstein analyst Kevin Kwek. “If we were to look for positives, this merger could facilitate a more meaningful push into both retail and SME customers.”Shares of Lakshmi Vilas fell 20%, the daily limit, in Mumbai on Wednesday, giving it a market capitalization of 4.2 billion rupees. DBS fell 0.1% in Singapore.Read opinion column on India banking rescue India’s banking system has been roiled in recent years by incidents including the collapse of systemically important Infrastructure Leasing & Financial Services Ltd., the forced bankruptcy of mortgage lender Dewan Housing Finance Corp. and the seizure of Yes Bank Ltd.Rising bad loans, depleting capital at state-run banks prompted the government to merge the weak lenders with bigger ones last year while infusing funds into the remaining ones including Punjab & Sind Bank last week.New AvenuesThe latest bank rescue “will be positive for depositors and senior creditors of LVB because the bank will benefit from parental support from DBS, a very strong bank,” Moody’s Investors Service said in a note.The move may also offer hope for other banks in Asia looking to gain a foothold in India. Japanese lenders including Mitsubishi UFJ Financial Group Inc. have expressed interest in expanding in the nation.The central bank said the process of amalgamation with DBS India Ltd. will be completed in 30 days. The freeze, which included the appointment of an administrator, was taken after Lakshmi Vilas underwent a steady decline, it said in a statement.The lender has had numerous setbacks in the recent past, including the ouster of its CEO by stakeholders. Lakshmi Vilas had been working to accelerate a proposed merger with private equity fund Aion Capital-backed Clix Capital Ltd., founder K.R. Pradeep said in September.Last year, the bank had planned to merge with shadow lender Indiabulls Housing Finance Ltd., only for the regulator to veto the move in October 2019. The RBI had placed Lakshmi Vilas under the restrictive Prompt Corrective Action framework in September of that year, months after the breach of key thresholds.The deal with DBS comes months after the collapse of Yes Bank, India’s largest bank failure, prompted a rescue from a consortium led by the country’s largest lender, State Bank of India. Yes Bank lost more than $6 billion in market value from early 2019 until the bailout in March.Earlier this month, a fraud-hit cooperative bank invited bids from investors to take over management control. Punjab and Maharashtra Co-operative Bank Ltd. said bidders could apply to convert it into a small finance bank after restarting operations.(Updates with comments from LVB’s administrator in third paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.