LVB-DBS merger akin to 2G scam: Subramanian Swamy

(The following is full text of the three-page letter dated December 3, 2020, that the controversial MP released on his social media handle)

Dear Prime Minister,

I write to bring to your attention the already executed amalgamation of Lakshmi Vilas Bank (LVB) with DBS Bank. I believe it is a Cabinet decision to approve the in toto acquisition of LVB by way of merger into the DBS. LVB is about 20 times larger than DBS in all dimensions of banking. LVB branches around India are about 550 in number.

LVB is a nearly 100-year old Karur-based bank in Tamil Nadu, catering to a vast section of the poor, underprivileged and the unbanked sections of the society.

At the close of business hours on November 17, 2020, the Reserve Bank of India (RBI) put out a draft amalgamation scheme by which the entire assets of LVB were to be transferred to DBS Bank.

In consideration for the above transfer of assets, DBS was to take over only the deposits of LVB. Further, the draft scheme envisaged that the entire bonds and shares of LVB would be written off, incredible as it may sound and a scandal in itself.

What is amazing to note that RBI had sought objections from stakeholders which were to be filed by the close of business hours on November 20, 2020, effectively giving less than 72 hours to them to respond.

I understand that several stakeholders, notably the bond and shareholders, had raised objections to the scheme. However, the RBI forwarded the Draft Scheme for Cabinet approval in great haste on November 25, without factoring any such objections. Subsequently, the scheme was notified and came into effect on November 27, 2020.

The haste with which RBI carried out the scheme of Amalgamation, the short-shrift given to the well-taken objections of the stakeholders, the unprecedented and unreasonable terms under which the bond and shareholders' interest have been written off, and the arbitrary manner in which DBS Bank was chosen without any standard operating procedure in such proposals, raise serious questions on RBI's functioning and integrity.

Such actions by RBI of ignoring the interests of LVB share and bond holders invariably parallels with the 2G spectrum scam in terms of arbitrariness, unreasonableness and malafide decision.

It is important to note that as in the 2G spectrum scam these reckless actions of the RBI may have disastrous consequences for the party and alliance partners in the forthcoming Tamil Nadu elections.

Notwithstanding the above, it may not be out of place to mention that, of late, the functioning of RBI as a regulator of banks and NBFCs has a lot to be desired. The present RBI Governor has history of corruption allegations when he served in Tamil Nadu.

Despite the fact that the RBI is armed with extraordinary regulatory, supervisory and monitoring powers vis-a-vis the banks under the Banking Regulation Act, and its nominees are represented in the Board of all Banks including the LVB, banks after banks have suffered losses and contributed to rise in NPAs.

In this connection, it is pertinent to note that the RBI nominee is a member on the nationalized bank's management committee, which exercises the powers of the bank's board with regard to credit proposals above specified threshold.

All these point out to a serious flaw in the functioning of the RBI and more particularly the lack of accountability.

Hence, I would request the government to consider the following:

• Put on hold with a view to a forensic audit of the takeover of the assets of LVB by DBS

• Assess the allegations against the DBS made internationally and DBS in home country viz. Singapore on money laundering.

• Request for an investigation by the Central Bureau of Investigation (CBI) into the functioning of the RBI, especially in the light of the fact that CBI has never found it necessary even to investigate any office of the RBI in any of the high-profile scams.

• The healthy functioning of RBI must remain one of the high priorities of our government. And hence the present RBI Governer be sent on indefinite leave till the investigations are over.

• The RBI and Advisory Committees to be re-constituted.

This case of LVB merger with DBS is one of the most scandalous government financial institution decision.

With regards

Dr Subramanian Swamy