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RETAIL BANKING | Staff Reporter, India

Resolution of India's Lakshmi Vilas Bank brings relief

The Indian central bank has always been supportive of its lenders, analysts said.

The Reserve Bank of India’s (RBI) resolution of the embattled Lakshmi Vilas Bank (LVB) will maintain sector stability and will bring much-needed relief for LVB, a S&P Global Ratings report noted.

RBI has proposed merging LVB with DBS Bank India, a wholly-owned subsidiary of Singapore’s DBS. As part of the proposal, DBIL will inject $337m (INR25b) into the merged entity to support its financial position. The central bank had put LVB under prompt corrective action (PCA) in September 2019, and the search for a white knight had been on since then.

Analysts have always viewed the Indian central bank as supportive of its banking sector, with the government consistently aiding feeble lenders by promoting the merger of distressed institutions with stronger banks, the report said.

The RBI's decision to consider a foreign bank, beyond just homegrown institutions, to bail out LVB shows its willingness to put control of banking assets in foreign entities, analysts added.

As for DBS, it won’t be materially affected by the acquisition of LVB, but it would significantly expand DBIL’s footprint in India. The union could grant DBIL a consequential physical presence important to complement the digital strategy it is already pursuing in the country.

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