DBS facing legal woes in India arising from LVB acquisition

Singapore

DBS is facing legal tussles in India arising from its recent takeover of troubled Lakshmi Vilas Bank (LVB), but maintains that provisions have already been made on this front.

In response to queries from The Business Times, it acknowledged that lawsuits have been filed by holders of equity shares and the tier II bonds written off prior to the effective date of amalgamation in various high courts in India.

However, DBS said in a statement that while DBS India has been named as a respondent, the primary respondents would be the Government of India and the Reserve Bank of India who have drafted and approved the Scheme of Amalgamation.

DBS went on to state that it has "no incremental unprovided risks" on these lawsuits. "Other legal liabilities in the normal course of business have also been suitably provided for," it added.

BT understands that senior counsel has since been engaged to represent DBS India.

In its full-year results briefing last week, DBS chief financial officer Chng Sok Hui had said asset quality was "dealt with decisively", as general allowances of S$183 million were conservatively set aside, amounting to 9.5 per cent of LVB's performing loans.

Singapore's largest bank took over LVB late last year, in what was said to be the first time Indian authorities have turned to a foreign lender to bail out a struggling local rival.

Cash-starved LVB has been seeking rescue since 2019, with consecutive losses over the past three years, coupled with mounting governance issues and bad debt.

DBS chief Piyush Gupta had said that he is "optimistic" and "fairly confident" that its takeover of LVB is expected to turn profitable in the next 12 to 24 months, with asset quality concerns accounted for.

The LVB deal added two million retail and 125,000 corporate customers to scale up DBS India's deposit base, accelerating the group's digital banking push in South India, he added. Overall, total deposits grew 59 per cent to S$9 billion as the franchise also expanded to 600 branches and 1,000 ATMs in India.

In a report by UOB Kay Hian on Friday, the brokerage wrote that it is concerned that the ongoing lawsuits will create legal uncertainties for DBS India.

"It is unfortunate for DBS to be hit by two ongoing lawsuits since the completion of amalgamation of DBI (DBS India) and LVB," said the report, describing it as a "double whammy".

Among them is a petition filed by troubled Indian finance company Religare Finvest Ltd (RFL) with the Delhi High Court to substitute DBS India as the defendant instead of LVB in its lawsuit involving the misappropriation of funds worth Rs 750 crores (about S$137 million). This amount has reportedly jumped to Rs 750 crores on accrued interest. This was filed on the ground of the merger of the two banks.

Two senior LVB employees were alleged to have been in cahoots with former owners of RFL Malvinder Mohan Singh and Shivinder Mohan Singh to misappropriate RFL's fixed deposits.

The UOB Kay Hian report also cited that India's Madras High Court has directed DBS India to provide an undertaking of cash compensation to previous LVB shareholders and create a reserve funding amounting to the face value of LVB shares, estimated to be at Rs 781 crores.

This was a "negative surprise", according to analysts, as the amalgamation was supposed to have written off the equity shares of the bank. The brokerage maintains a "hold" call on the bank.

DBS' shares closed at S$25.63 on Friday, down 13 cents or 0.51 per cent.