RBI sets superiority in LVB bond write-off, offended other banks: Report

Throughout the yes bank rescue earlier this year, there was an involvement of a different instrument named as additional tier-I bonds even with more than Rs 7,000 crore bond write off. The write off of Rs
According to a report, Lakshmi Vilas Bank’s (LVB) bonds write-off of Rs 318-crore tier-II bonds ahead of its merger with DBS Bank is an example set by the Reserve Bank of India. Besides, this will hurt the private sector moneylender’s aristocrats. The amalgamation of Lakshmi Vilas Bank with DBS in the scheme planned by RBI the investment of Rs 318.20 crore in bonds issued by LVB will be written off, as per the exchange information provided by the moneylenders late Thursday night.
“RBI has set a priority with the proposed LVB bond write-off as it’s the first time a tier-II bond is being written off,” said rating agency ICRA in the report on Friday. Additionally, the agency said that the depositors should take the risk in Basel-II instruments as if these instruments would get cut off the whole bank would get into trouble.
The rating agency said that they expect the risk premiums for such instruments to increase for weaker private banks to increase, given in this event.
On Thursday evening, the RBI before the amalgamation with DBS Bank has been advised of the need to fully write down the Series VIII, Series IX, and Series X Basel-III-compliant tier-II bonds that came into effect on Friday.
If the appropriate authorities feel the need to regain the bank or combine the bank with any other under Section 45 of the Banking Regulation Act, then that bank will be considered as non-viable and both the pre-specified trigger and the trigger at the point of non-viability for the write-down of bonds shall be activated.
As per the LVB bond write-off and the terms of the information memo of the respective Basel-III Tier-II bonds issued by the bank, “the bonds shall be written off before amalgamation in agreement with valid guidelines.” Also, LVB said quoting Thursday’s letter from the RBI, Basel-III tier-II bonds need to be fully written down before the union of the bank comes into effect.
On Wednesday, the effective date of the merger of 27th November just after the Union Cabinet led by Prime Minister Narendra Modi, the Scheme of Amalgamation of LVB with DBS Bank India Ltd (DBIL) got official.
On 17th November, RBI outdated LVB’s board after the private sector moneylender was positioned under a 30-day freeze curbing cash withdrawals at Rs 25,000 per investor. The RBI at the same time placed a draft scheme of the union of LVB with DBIL in the public sphere.
It was started under the leadership of V S N Ramalinga Chettiar in 1926, by a group of seven businessmen of Karur in Tamil Nadu. At present, there are 566 branches and 973 ATM’s across 19 states and Union territories.
In September 2019, as the non-performing assets (NPAs) were rising, the bank was put under the quick corrective action outline of the Reserve Bank of India (RBI).
After Yes Bank, LVB is the second private sector Bank that has been through rough times this year. In March, Yes Bank being capital-starved was placed under a freeze.
The government saved the Yes Bank by requesting State Bank of India to fill Rs 7,250 crore and take a 45% stake in the lender.


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