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Troubled Indian bank may fold into DBS' India unit under RBI proposal

A TROUBLED Indian bank may be folded into DBS Group's India business under a proposed scheme by the Reserve Bank of India (RBI), DBS said in a Singapore Exchange filing late on Tuesday night.

If the scheme is approved, DBS will inject INR 2,500 crore (S$463 million) into its wholly-owned unit DBS Bank India Ltd (DBIL) to support the amalgamation. This will be fully funded from DBS's existing resources.

The RBI has announced a draft scheme to amalgamate Lakshmi Vilas Bank with DBIL, which has a presence in 24 cities across 13 states.

The proposed amalgamation is under the special powers of the government of India and RBI under Section 45 of the Banking Regulation Act, 1949.

DBS said in its statement: "The proposed amalgamation will provide stability and better prospects to Lakshmi Vilas Bank's depositors, customers and employees following a time of uncertainty.

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"At the same time, the proposed amalgamation will allow DBIL to scale its customer base and network, particularly in south India, which has longstanding and close business ties with Singapore."

DBS said it will await the final decision on the proposed scheme from RBI and the government of India, and will announce further details later.

Lakshmi Vilas Bank has been put under a one-month moratorium from Nov 17 to Dec 16. In a statement, the RBI said that the financial position of Lakshmi Vilas Bank "has undergone a steady decline, with the bank incurring continuous losses over the last three years, eroding its net-worth".

It noted that the bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses, and is experiencing continuous withdrawal of deposits and low levels of liquidity.

Reuters reported that India's government said it had also temporarily capped withdrawals from Lakshmi Vilas Bank. Reuters added that the bank has been looking for a partner since last year amid surging bad loans that come on top of "governance issues".

As at 10.33am on Wednesday, shares of DBS were up seven cents to S$24.72. 

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