RBI opens Rs 7000 cr window for DBS Bank

Mumbai: The Reserve Bank of India (RBI) is said to have extended nearly Rs 7,000 crore in special liquidity assistance to DBS Bank India Ltd to meet its short-term funding needs following the acquisition of the struggling Lakshmi Vilas Bank (LVB). These funds will be used to manage the mismatch arising out of the erstwhile Lakshmi Vilas Bank’s assets and liabilities as the customers of the failed bank pull out some funds or shift from short to long-term deposits or otherwise, said people familiar with the matter.While the funding is for the short term, it may have been charged interest rates close to or linked to the repo rate, at which the RBI usually lends to banks, as the situation at DBS may have arisen due to the takeover of the struggling bank rather than its own financial position, said the people cited above. “The deposit outflow started somewhere in December and continued in January. It was persistent with a few hundred crores going out, which impacted the bank’s liquidity coverage ratio and forced them to tap the RBI window,” said a person associated with the erstwhile lender. DBS said there’s no unusual flight of deposits from the former LVB and that it is availing of liquidity from the lender of last resort under the window that’s available for the banking industry.“There has not been any unusual flight of deposits from the erstwhile Lakshmi Vilas Bank (LVB) after its amalgamation with DBS Bank India Ltd (DBIL) other than to meet accumulated requirements during the RBI imposed moratorium period,” DBS said in response to a query from ET. “DBIL continues to meet all obligations of the erstwhile LVB including retiring high-cost deposits. DBIL also continues to avail of liquidity from RBI under extant regulation to also cover the illiquid nature of LVB assets.” The Indian unit of Singapore’s DBS did not respond to the specific question about getting Rs 7,000 crore from the RBI and the rate at which it did so. RBI did not respond to queries on the matter of special funding to DBS. 80441498DBS India acquired the teetering Lakshmi Vilas Bank in November 2020 through an RBI-approved scheme of amalgamation to save it from collapse after losses in the last three years had eroded the lender’s net worth. The acquisition made it the largest foreign bank in India in terms of branches, adding 563 to its 34 before the merger. This will help DBS reduce the gap with the four bigger foreign banks in India in terms of assets and consolidate its position as the fifth in this regard.The takeover was facilitated by the regulator after efforts over the years to save the bank did not bear fruit. It held talks with many lenders, including nonbanking finance companies (NBFCs), to get funding. But few were interested and Clix Capital, which conducted due diligence, sought better terms, said people familiar with the matter. The RBI funding could be to meet unexpected deposit withdrawals after the takeover, said some of those cited above.The central bank had extended similar funding to Yes Bank last year before it facilitated a bailout with equity investments from peers such as State Bank of India, Kotak Mahindra, Axis Bank, ICICI Bank and others. RBI then opened a liquidity window of Rs 60,000 crore for Yes Bank to meet any flight of deposits. It utilised Rs 50,000 crore of funding and repaid the sum once its operations stabilised under CEO Prashant Kumar. The central bank’s liquidity support should help stabilise operations and DBS may possibly improve financial ratios if it manages to lower the cost of funds.

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