Lakshmi Vilas Bank Shareholders Might Be Left In A Difficult Position: Here's Why

On continued financial stress, the Reserve Bank of India on Tuesday (November 17, 2020) put the private sector lender Lakshmi Vilas Bank (LVB) under a moratorium for a period of one month. While depositors' interest in the bank will be fully protected, shareholders of the bank might be left in a hard situation.

This is because moments after the announcement of putting the bank under moratorium, RBI proposed its merger with DBS Bank India. And as per the terms of the draft scheme of amalgamation "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."

Lakshmi Vilas Bank Shareholders Might Be Left In A Difficult Position: Here's Why

Besides "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."

So, if the proposed amalgamation goes through as per the current draft scheme, it is very likely that DBS Bank India will absorb Lakshmi Vilas Bank and the latter will altogether cease to exist. Furthermore as mentioned the company's scrip will also be delisted from the Indian stock exchanges. On Tuesday, the stock of LVB closed at Rs. 15.5 per share on the BSE.

Yes Bank shareholders were better off when similar restriction was put on the bank

In the case of Yes Bank which also met a similar fate in March this year, the situation was pretty different as SBI and other lenders came to rescue the bank and infused capital to buy a stake in the distressed entity. And as a result, Yes Bank wasn't absorbed into any other financial institution and it was able to retain its identity. Also, at the same time, its securities continued to be listed on exchanges.

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