Page 12 - Banking Finance December 2020

RBI CORNER

At the time its share capital was wiped instruments to increase for weaker N Ramalinga Chettiar in 1926, LVB now
out by the banking regulator as part of private banks to increase, given this has 566 branches and 973 ATMs spread
a rescue plan, promoter entities held event," the ratings agency said. across 19 states and Union territories.
6.8% in LVB, while the rest 93.2% was In an exchange filing, the bank said the With non-performing assets (NPAs)
owned by public shareholders, both RBI has advised it of the need to fully soaring, the bank was put under the
small and large. Public shareholders write down the Series VIII, Series IX prompt corrective action framework of
included foreign portfolio investors like and Series X Basel-III-complaint tier-II the Reserve Bank of India (RBI) in Sep-
India Opportunities Growth Fund Ltd- bonds before the amalgamation with tember 2019.
Pinewood Strategy (3.74%) and Avia- DBS Bank comes into effect on Friday. LVB is the second private sector bank
tor Emerging Market Fund (2.49%); "If the relevant authorities decide to after Yes Bank that has run into rough
non-bank financiers like Srei Infrastruc- reconstitute the bank or amalgamate weather this year. In March, capital-
ture Finance Ltd (3.34%), Prolific the bank with any other bank under starved Yes Bank was placed under a
Finvest Pvt. Ltd (3.36%) and Indiabulls the Section 45 of the Banking Regula- moratorium. The government rescued
Housing Finance Ltd (4.99%), among tion Act, such a bank shall be deemed Yes Bank by asking State Bank of India
others. as non-viable and both the pre-speci- (SBI) to infuse Rs 7,250 crore and take
fied trigger and the trigger at the point 45 per cent stake in the lender.
RBI bond write-off in LVB, of the point of non-viability for write-
down of bonds shall be activated. RBI postpones submission
will affect other banks
"Accordingly, the bonds shall be writ- of TLTRO reversal requests
The write-off of Rs 318-crore tier-II ten off before amalgamation or recon-
bonds by Lakshmi Vilas Bank (LVB) stitution in accordance with applicable Banks are not willing to reverse the
ahead of its merger with DBS Bank is rules," according to the terms of the money taken under targeted long term
a precedent set by the Reserve Bank information memorandum of the re- repo operations (TLTRO) in favour of
of India (RBI) and will hurt the private spective Basel-III Tier-II bonds issued low cost TLTRO, which comes with
sector lender's peers, according to a by the bank, LVB said. some riders.
report. During the Yes Bank rescue The Reserve Bank of India again post-
earlier this year also, there was an Hence, such Basel-III tier-II bonds poned the date of submission for re-
would need to be fully written down
over Rs 7,000-crore bond write-off, but questing the reversal of the money
before amalgamation of the bank
that involved a different instrument taken from the central bank to invest
comes into effect, LVB said quoting
called additional tier-I bonds. in corporate bonds and commercial
Thursday's letter from the RBI.
In the case of LVB, which is being papers. The idea was that the banks
Recently, the RBI notified the effective would reverse the money, taken at
merged with DBS in a scheme pro- date of merger of November 27 soon
posed by the RBI, investments of Rs after the Union Cabinet headed by repo rate that time, in favour of repo
318.20 crore in bonds issued by LVB will Prime Minister NarendraModi ap- rate now.
be written-off, the lender informed the The rates have come down by more
proved the Scheme of Amalgamation
exchanges late Thursday night. than 100 basis between these two
of LVB with DBS Bank India Ltd (DBIL).
"RBI has set a precedence with the The RBI superseded LVB's board on points. The new TLTRO, however,
proposed write-off as it's first time a November 17 after the private sector came with a condition that the on-tap
fund availed under the route should be
tier-II bond is being written off," rat- lender was placed under a 30-day invested in papers issued by companies
ings agency ICRA said in the report.
moratorium restricting cash withdraw- in the agriculture, agri-Infrastructure,
The agency added that investors als at Rs 25,000 per depositor. secured retail, micro, small and me-
should factor in the risk in Basel-III in- The RBI simultaneously placed in public dium enterprises (MSMEs), drugs,
struments, as these instruments can be domain a draft scheme of amalgam- pharmaceuticals and in healthcare.
completely written off in case the bank ation of LVB with DBIL. Started by a The on-tap TLTRO scheme would re-
gets into trouble. group of seven businessmen of Karur in main operational till March 31, and all
"We expect the risk premiums for such Tamil Nadu under the leadership of V S banks are eligible to participate. T

12 | 2020 | DECEMBER | BANKING FINANCE