Lakshmi Vilas Bank’s debt stinging other small lenders

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Since the Reserve Bank of India (RBI) has declared on late Thursday that Lakshmi Vilas Bank which has a worth of INR 3.18 billion, estimated to be 43 million in dollars ($), will be handed to DBS Group Holdings Ltd. LVB as a bank has started establishing since 1926 and has earned profit for the past 90 years. Further it has 973 ATMs and 566 branches in 19 states of India. But since the last 3 years it has been continuously losing profits and had fallen into heavy debt. The announcement came along with a surprise when the RBI-appointed administrator declared that DBS will be taking over all the obligations and the bonds also. 

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Regarding this news managing director of JM Financial Products Ltd., Ajay Manglunia has quoted “Financing costs may inch up and the appetite shall be lower especially for the lower-rated private and small finance banks”. He further adds to that statement by quoting “Such lenders will have to rely more on equity raise as investors shall be a bit more skeptical to take a risk now.”

After the declaration of the news regarding Lakshmi Vilas Bank (LVB) the smaller banks have been facing various problems in their finance system. It has been interpreted that they are likely to face a hike in funding costs and reduced investor for bonds as soon as the non-performing loans start spreading. This weakening demand for bonds of the minor finance systems will be adding pressure on lenders who are already backed with worse debts. These small banks also have the necessity of capital for anticipating more loans in the post-pandemic market.

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