Why is bank union opposing merger of Lakshmi Vilas Bank with DBS Bank? Here's the reason

New Delhi: A day after the RBI put in public domain a draft scheme of merger of Lakshmi Vilas Bank (LVB) with subsidiary of Singapore-based DBS, public sector banks' officer union AIBOC on Wednesday said the amalgamation is not in the national interest and demanded the consolidation with any PSB.

The proposed amalgamation of the cash-strapped LVB with DBS Bank India seems to be a ploy to provide entry of foreign banks into the country in a big way, All India Bank Officers' Confederation (AIBOC) President Sunil Kumar said.

The Indian banking sector provides huge opportunity for growth, so the foreign banks have been looking at inorganic route to expand their presence for long, he said.

Kumar expressed apprehension that the unbridled entry of foreign banks "would lead the country into economic slavery and they will plunder the resources".

He added that as a stakeholder, AIBOC requests the Reserve Bank of India (RBI) to re-think its stand on the proposed amalgamation in the national interest.

According to the draft scheme of amalgamation floated by the RBI on Tuesday, it proposed to merge the beleaguered private sector lender LVB with DBS Bank India Ltd (DBIL), the local unit of Singapore-based DBS Holdings.

"DBIL has a healthy balance sheet, with strong capital support. Although the DBIL is well capitalised, it will bring in an additional capital of Rs 2,500 crore upfront, to support credit growth of the merged entity," the RBI had said.

Old-generation private sector banks have been serving the nation before independence and they have been almost working as PSBs in this country, Kumar said.

He added that thus, it should be merged with any public sector bank (PSB) to retain their character rather than a subsidiary of foreign bank.

In the past also, any old-generation private banks were merged with a PSB when they came under financial stress, he said.

"PSBs are not just doing commercial banking but social banking with nation first as their moto. It has been proved time and again and most recently, during the COVID-19 period," he said.

Kumar added that comparing the PSBs with the private sector banks would be unfair, as lenders in the private sector space only do banking with profitability as their sole objective.

It was the public sector bankers who extended the financial assistance from the government into the accounts of poor at the far-flung areas, naxal-affected villages and inhospital places, he said.

DBS has been in India since 1994. In March 2019, to expand the franchise and build greater scale, DBS converted its India operations to a wholly-owned subsidiary DBIL. DBIL is now present in 24 cities across 13 states.

LVB's troubles started after it shifted its focus to lend to large businesses from small and medium enterprises. With soaring non-performing assets (NPAs), the bank was put under the RBI's prompt corrective action framework in September 2019.

The bank had recorded a net loss of Rs 396.99 crore during the second quarter ended September 2020, which widened from Rs 357.17 crore in the same quarter a year ago.

Net NPAs or bad loans stood at 7.01 per cent of the net loans at the end of September 2020, against 10.24 per cent as on March 31, 2020, and 10.47 per cent by September 2019.

Started in 1926, LVB has so far expanded with 566 branches, and 918 ATMs in 19 states and 1 Union territory.