As per RBI’s extant guidelines, Basel III-compliant AT-1 and tier 2 instruments can absorb losses via conversion into common equity or a write-down.
Lakshmi Vilas Bank (LVB) on Thursday informed the exchanges that the Reserve Bank of India (RBI) has advised it of the need to fully write-down the series VIII, IX and X Basel-III compliant Tier-2 bonds worth Rs 318.20 crore. This will be the second instance of bonds being written down after the additional Tier 1 (AT1) bonds of Yes Bank were written down as per its reconstruction plan.
“The RBI, vide their letter dated November 26 has advised the need to fully write-down the series VIII, series IX and series X basel-III complaint tier-2 Bonds before the amalgamation comes into effect from the Appointed date i.e., November 27, 2020,” LVB said in a release.
As per RBI’s extant guidelines, Basel III-compliant AT-1 and tier 2 instruments can absorb losses via conversion into common equity or a write-down. According to sources, of the total outstanding Tier 2 bonds of Rs 368.70 crore, instruments amounting to Rs 318.20 crore can absorb losses. These bonds, issued between March 2014 and June 2017, and maturing between March 2024 and September 2025, carried a coupon rate, ranging between 10.7% and 11.8%.
As on September 30, 2020, LVB’s net worth was negative. The bank has been incurring losses continuously since quarter ended March 2018, eroding its net-worth. The bank was in breach of the prompt corrective action (PCA) thresholds for all the indicators, capital, asset quality, profitability and leverage, before action was taken on the lender, as per sources.
The Cabinet had on Wenesday approved the amalgamation of LVB with the Indian arm of Singapore’s DBS Bank following which the RBI said the moratorium on the crisis-ridden private sector lender would be lifted as the merger takes effect on November 27. Consequently, the restriction on cash withdrawals by a depositor beyond Rs 25, 000 will also be lifted on Friday. LVB branches will operate as those of DBS Bank India (DBIL) once the moratorium ends. As part of the amalgamation, DBIL will infuse a fresh capital of Rs 2,500 crore into LVB.
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