Mumbai: Even as Lakshmi Vilas Bank’s (LVB’s) equity shareholders cry foul over the Reserve Bank of India’s (RBI’s) amalgamation scheme with DBS Bank India, experts say there is little chance for them to recover their investment.
“Except mercy, there is no legal recourse for LVB shareholders,” said J.N. Gupta, managing director of proxy advisory firm Stakeholders Empowerment Services.
“As a banking regulator, RBI’s first responsibility is towards the banking system and then towards the stakeholders of the banking system, which in this case was LVB’s depositors,” said Gupta. “Shareholders come last in RBI’s scheme of things,” he added.
“Considering the fact that depositors’ money has been safeguarded, the proposed merger arrangement between LVB and DBS India is a job well done for RBI,” concluded Gupta.
Though, he said, that the draft scheme of amalgamation has been “absolutely hurting” from the shareholders’ perspective as it turns their share value into zero without any prior notice.
The draft scheme of amalgamation of LVB with DBS Bank India published on the RBI website said that the entire amount of the bank’s paid-up share capital will be written off.
“On and from the appointed date, the transferor bank shall cease to exist by operation of the scheme, and its shares or debentures listed in any stock exchange shall stand delisted without any further action from the transferor bank, transferee bank or order from any authority,” said the draft scheme.
After RBI’s decision was made public, a few media reports said that LVB investors were planning to approach RBI to reconsider the proposal of writing off the paid-up share capital and reserves. However, Gupta said that the chances of that happening are nil.
“RBI can definitely be questioned for the write-off, but chances of it taking back the decision in the final scheme of amalgamation are almost zero,” he said.
Kirtan A. Shah, the chief financial planner at Sykes & Ray Equities (I) Ltd, also said that though LVB’s equity shareholders are in a tough situation, they are “themselves to be blamed” for the fiasco.
“LVB crisis has been known for nearly two years… the bank has been in the news for all the wrong reasons… RBI had also initiated prompt corrective action (PCA) against the lender due to high level of bad loans,” said Shah: “Keeping in mind that all this information was in public domain, investors took the extremely high risk of still putting in money in the LVB stock.”
“The writing was clearly on the wall… equity is the riskiest asset and it is the last one to be paid, as has happened here,” he noted.
Meanwhile, RBI has invited suggestions and objections from members, depositors and other creditors of LVB and DBS Bank India on the draft scheme of amalgamation which have to be submitted by 20 November.
LVB shareholders include names like Indiabulls Housing Finance, Srei Infrastructure Finance, Capri Global Holdings. Life Insurance Corporation of India, Aditya Birla Sun Life Insurance and Pramerica Life Insurance.
