ALOHOMORA 2020

Round 2 – Live Case Study

All the shares of Lakshmi Vilas Bank put together was worth 6000 Crores during a point in time. But today the
shares of Lakshmi Vilas Bank are worth zero.
What exactly happened to India’s oldest Bank?
LVB was started in Tamilnadu in 1926 by 7 businessmen. LVB saw a huge growth between the period of 1960-
1970. It also acquired 9 banks to add to its growth. But at the end of 2020, the bank has around 563 branches
and Rs.20000+ Crores of public deposit. The bank was seeing growth until 2018 when things started turning out
really bad for LVB. What went wrong?
Between 2010 and 2017, LVB further started pushing for growth. So, during this time, the bank gave loans to
infrastructure, textile and other metal companies which were not in good financial positions. During this growth
expansion time (2010-2017) the revenues of LVB bank grew almost 3 times as well as their loan book grew over
4 times. Things started taking a turn when the companies that borrowed loans were not able to pay the interest
or repay the loans. Which lead to a huge set of unpaid loans piling up in the bank’s books. In 2018, LVB reported
a loss of around Rs.580 Crores. From then on, the bank started reporting loss quarter after quarter for almost 2
years. This severe piling up of bad loans, as well as net loss, has put the bank in a very bad financial position. In
2019, LVB proposed a merger with the second largest housing finance company in India, i.e. India Bulls Housing
Finance. This merger would have given good financial stability to LVB, but unfortunately, this merger was not
approved by RBI. From then onwards the financial position of LVB started to get much worse. In September
2020 the company reported a net loss of around Rs.397 Crores and its NPA of the bank stood at 25% of its total
advances. Considering the financial position of the bank, RBI issued a one-month moratorium on the bank. This
was issued as the bank may face liquidity crises when RBI declared the financial position of the bank.
DBS India, a subsidiary of DBS Singapore offered to pay 2500 Crores to buy a 51% stake in LVB, based on which
a draft amalgamation scheme was issued by RBI. This would provide strong financial support for LVB bank, while
LVB shareholders get nothing.
The task at hand:
1. How do you think the LVB can raise its financial position with the infusion of capital from DSB?
2. As a board member of LVB bank, how will you handle the panic created among the depositors and what
could be done by the bank to gain back their trust?
3. What would be the present and future impact on Banking Industry?
AIBEA had registered a protest against the RBI’s proposed merger stating that the government should present
the essence of Indian banks and give it to a national lender instead of handing it over to a foreign bank. Comment
on this protest and also state which Indian bank could be an alternative to DBS in the merger with appropriate
justification.