DBIL-LVB merger positive for India, says S&P
The Indian government is highly supportive of the banking sector and has consistently supported weak commercial banks by promoting the merger of distressed institutions with stronger lenders, says S&P Global Ratings of the proposed merger of troubled Lakshmi Vilas Bank (LVB) with Asian heavyweight DBS Group.
The rating agency noted that the Reserve Bank of India (RBI) and the government have stepped in quickly to prevent any loss to the creditors, including depositors, and maintain system stability in the case of LVB.
“In our view, the RBI’s decision to consider a foreign bank, beyond just homegrown institutions, to bail out LVB demonstrates its willingness to put control of banking assets in foreign entities,” said S&P.
The acquisition of LVB will not materially affect the financial position of DBS. LVB is small when compared to DBS, accounting for less than 1% of the Singapore-headquartered banking group’s total assets across major Asian markets including China.
LVB will significantly expand DBS Bank of India Ltd’s (DBIL) footprint in India. As of 30 September 2020, LVB had 563 branches, compared with DBIL’s 27.
“The merger could provide a DBIL with a meaningful physical presence, which we believe is needed to complement the digital strategy the bank is already pursuing in India,” S&P underlined.
LVB will also help DBS penetrate deeper into the southern parts of India.
As part of the proposal, DBIL, the wholly-owned subsidiary of DBS Bank Ltd (AA-/Stable/A-1+), will inject Rs.25 billion into the merged entity to support its financial position.
S&P Global Ratings believes this deal is positive for India’s banking sector and will bring much-needed relief to LVB, which has been struggling for many years.
The RBI had put the private-sector lender under prompt corrective action (PCA), or under watch by the central bank in September 2019, and the search for a white knight had been on since then.
“We believe the RBI took into account DBIL’s healthy balance sheet and capitalization when considering potential suitors for LVB.
The Indian bank, which has only a 0.2% market share, is the only non-government-owned bank under PCA. #banking #investment #financing #economy /fiinews.com
