Tamil Nadu-based Lakshmi Vilas Bank (LVB) on Friday lost its identity after its merger with the Indian subsidiary of Singapore’s DBS Bank.
The debt-ridden 94-year old bank’s fate was sealed with the cabinet approving the scheme of amalgamation on Wednesday.
The RBI had announced November 27 as the effective date for the merger. All the branches of LVB will function as branches of DBIL with effect from November 27.
LVB was asked to write off Rs 318-crore Tier-II Basel III bonds ahead of its merger with DBS Bank by the RBI on Thursday citing Section 45 of the Banking Regulation Act, resulting in losses to the investors of these bonds.
“The RBI has set a precedence with the proposed write-off as it’s the first time a tier-II bond is being written off,” ratings agency Icra said in a report on Friday.
The agency added that investors should factor in the risk in Basel-III instruments, as these instruments can be completely written off in case the bank gets into trouble.