Recently, the Chennai-based Lakshmi Vilas Bank (LVB), merged with DBS Bank of India, after facing severe financial distress. The merger was hailed as an effort to protect the bank’s depositors. But now LVB has come under the scanner for possible violation of disclosure norms including insider trading rules.
Business Standard reported that the Securities and Exchange Board of India (SEBI) is scrutinizing a surveillance report submitted by one of the stock exchanges that suspected unfair trade practices.
This comes as a second wave of bad news for depositors who were shell shocked when a month-long moratorium was imposed on the bank by the Reserve Bank of India (RBI) on November 17, 2020, observing, “The financial position of Lakshmi Vilas Bank Ltd has undergone a steady decline with the bank incurring losses over the last three years, eroding its net-worth. The absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue.” The RBI’s statement further said, “The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses. Further, the bank is also experiencing continuous withdrawal of deposits and low levels of liquidity. It has also experienced serious governance issues and practices in the recent years which have led to deterioration in its performance.”
But all that appeared to have been resolved on November 27, 2020 when LVB was merged with DBS Bank of India, a wholly owned subsidiary of Development Bank of Singapore (DBS). This was done after the RBI first announced a draft scheme of amalgamation on November 17 itself.
Then it emerged that some large shareholders of LVB had bought shares through proxy entities in the middle of the search for a buyer, suggesting they acted on prior knowledge of future gains. According to RBI guidelines no single entity can own more than 5 percent in any private bank without the regulator’s approval.
It is noteworthy that when its share capital was wiped out by the RBI, LVB promoters held only 6.8 percent of the shares. The remaining 93.2 percent was held by large and small public shareholders.
But that wasn’t all. LVB bond holders moved Madras High Court against the RBI’s decision to extinguish tier 2 bonds worth Rs 320 crores as a part of the amalgamation deal.
The downward spiral
Founded in 1926 in Karur, Tamil Nadu, by a group of seven businessmen, to cater to the needs of traders, businessmen and agriculturists, the bank grew to have over 500 branches across India. But trouble began in 2016, when the bank shifted focus from lending to Small and Medium Enterprises (SME) to large enterprises. Their first financial misadventure took place when they loaned Rs 720 crores to Malvinder Singh and Shivinder Singh of Ranbaxy and Fortis Healthcare. This bad loan marked the beginning of LVB’s downward spiral.
In 2018, Religare Finvest, a part of Religare Enterprises Ltd. took LVB to court to recover fixed deposits worth Rs 800 crores that had been invoked by the bank to recover loans to the Singhs. In September 2019, RBI put LVB under Prompt Corrective Action (PCA) preventing it from advancing any further loans or opening new branches. In fact, after the amalgamation, Religare moved court demanding DBS Bank of India be made party to the suit.
Meanwhile, two successive attempts of cash influx via mergers with India Bulls Housing Finance and the Clix Capital failed, in June and October respectively, driving LVB into further financial distress.
Subramanian Swamy’s warning
Meanwhile, BJP MP Dr. Subramanian Swamy has written to the Prime Minister urging him to stay the amalgamation asking why the deal was approved with such “great haste” without addressing concerns raised by shareholders first. Calling the RBI’s decision “reckless”, blamed RBI governor Shakti Kanta Das for the shoddy deal. He has now called for an audit of LVB’s assets.
His letter dated December 3, 2020, may be read here:
I have written to Prime Minister @narendramodi today about the corrupt merger of Laxmi Vilas Bank with DBS pic.twitter.com/LCQ64YhMIs
— Subramanian Swamy (@Swamy39) December 3, 2020
Dr. Swamy has also demanded a probe into allegations of money laundering by DBS bank.
The Financial Crimes Enforcement Network( FinCEN) of US Department of Treasury (US equivalent of Finance Ministry ) has named DBS as a suspect in a $ 6 billion money laundering scam. Wow! Masala for PIL
— Subramanian Swamy (@Swamy39) December 4, 2020
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