Page 11 - Banking Finance December 2020

RBI CORNER

merger, there will no further restric- Shakti Sinha, and Satish Kumar Kalra, sector institutions, technology industry
tions on the depositors regarding the being headed by Meeta Makhan. and academic institutions and coordi-
withdrawal of their deposit," Union Moody's said the merger will nate efforts for exchange of ideas and
minister Prakash Javadekar said. strengthen DBS's business position in development of prototypes related to

Analysts and global credit rating agen- India by adding new retail and small financial innovations.
cies have applauded RBI's move and and medium-sized customers.
said that it will benefit both parties. RBI and Sebi probe LVB
"The quick action taken by the RBI in Kris Gopalakrishnan ap- share deals
the Laxmi Vilas Bank matter affirms The Reserve Bank of India and the Sebi
the faith of the depositors in the bank- pointed first Chairperson
ing system," Ajay Shaw, Partner, DSK of RBI Innovation Hub are investigating whether some large
shareholders of Lakshmi Vilas Bank
Legal. The Reserve Bank of India has ap-
(LVB) bought shares of the troubled
"LVB merger with another bank is a pointed Senapathy (Kris) lender through proxy entities beyond
very prudent step in order to save the Gopalakrishnan, co-founder and former the regulatory cap in the middle of its
depositors and to mitigate the system- co-Chairman, Infosys, as the first Chair- search for a buyer according to
atic disruption associated with it. The person of the Reserve Bank Innovation sources.
image of government and regulator Hub (RBIH).
gets enhanced by such timely action The probe began after RBI received
The central bank, in its Statement on complaints that some large LVB share-
and response," said S Ravi, former
Developmental and Regulatory Policies holders bought shares through proxy
chairman of Bombay Stock Exchange
issued on August 6, 2020, had an- entities beyond the permissible limit
(BSE) and Managing Partner of Ravi nounced that it would set up an Inno-
Rajan & Co. from the open market to raise their
vation Hub to promote innovation holding for greater control over the
DBS was the first foreign bank to re- across the financial sector by leverag- lender. Under RBI norms, a single en-
ceive a banking licence after the cen- ing on technology and creating an en- tity can only buy less than 5% in any
tral bank allowed foreign banks to set vironment which would facilitate and private bank without its prior approval.
up a wholly owned subsidiary in 2014. foster innovation.
"With DBS likely to use digital capabili- "The regulators are investigating
RBIH will be guided and managed by
ties to enhance its physical footprint in whether some of the existing share-
a Governing Council (GC) led by a Chair-
India, the proposed deal could lead to holders have been purchasing equity in
person. Besides Gopalakrishnan,
a 30-40% increase in Indian assets of LVB through some proxy entities to
DBS," said JPMorgan analysts Harsh RBIH's Governing Council will have work around the RBI cap. While the
nine other members including a CEO (to
Wardhan Modi and Saurabh Kumar. equity capital has been extinguished,
be appointed); Ashok Jhunjhunwala, the regulators are trying to find out if
The regulator had put LVB under Institute Professor, IIT, Madras; H.
Prompt Corrective Action in September Krishnamurthy, Principal Research Sci- there were any wrongdoing," said one
2019. The lender earlier reported wid- entist, IISc., Bengaluru; Gopal of the two people cited above, both of
ening of its net loss at Rs. 397 crore in Srinivasan, CMD, TVS Capital Funds; whom spoke on condition of anonymity.
the second quarter ended September A.P. Hota, Former CEO, National Pay- According to the second person, the
2020 due to rise in bad loans and pro- ments Corporation of India. probe aims to determine whether
visions. On 25 September, the share- these shareholders were trying to ex-
The RBI, in a statement, said the RBIH
holders of the bank had voted out ert more influence over the board
seven members from the board, in- would create an eco-system that through these proxies. "Some of the
would focus on promoting access to
cluding the then MD and CEO S shareholders had a lot of say in the
Sundar. The RBI on 27 September ap- financial services and products. This bank's functioning, and perhaps the
pointed the CoD composed of three will also promote financial inclusion. proxies were used to bolster their
independent directors Meeta Makhan, The Hub will collaborate with financial stands in board meetings," he said.

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