In 2018, RBI rejected DBS's bid for 50% stakes in Lakshmi Vilas Bank

While the Reserve Bank of India has now drafted a merger plan of the Lakshmi Vilas Bank with the DBS Bank India, reports suggest that the regulator had earlier rejected a proposal by the Singapore-based bank to acquire 50% stake in the LVB.

Citing “steady decline” in its financial position over the last three years, the RBI on Tuesday imposed a moratorium on LVB for 30 days and proposed a draft scheme for its merger with the DBS Bank India, which is wholly owned by the DBS Bank Ltd of Singapore.

In 2017-18, the DBS Bank had made an offer via merchant banker JP Morgan to acquire 50% stake or more in the LVB, ThePrint reported quoting LVB’s promoter KR Pradeep. But the proposal was rejected in 2018 as DBS wasn’t ready to dilute the promoter’s stake while Indian rules mandate a period for reduction in stakes in private banks to 15%.

Pradeep said DBS Bank had discussed the issue with JP Morgan and that DBS did not want any dilution and the RBI wasn’t interested in providing any concession.

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If the DBS had then acquired 50% stake at that time, LVB could have retained its identity and not have to undergo a merger as proposed by the regulator, the report said, adding the DBS Bank is now set to acquire 100% stake of LVB under the current draft merger plan.

During the bidding process of 2017-18, several investors had expressed interesting in the LVB and many had made offers. The highest bid was at ₹155 per share, the lowest being ₹100, which valued LVB between ₹3,500 crore-₹5,000 crore, the report said.

The RBI on November 17 imposed an one-month moratorium on the Lakshmi Vilas Bank, which was founded by a group of seven businessmen from Tamil Nadu’s Karur, and also proposed its merger with the DBS Indian Ltd, which, if its materialises, would become the first instance of an Indian lender’s amalgamation with the subsidiary of a foreign bank.