Hint to Foreign Banks, Shareholders

Context: The recent announcement to go for merging of Laxmi Vilas Bank with an Indian arm of Singapore lender has sent out a signal for the foreign banks wanting to do business in India.

Signals from Reserve Bank of India (RBI) and the Government:

• Allowing subsidiaries and not branches: Legal entity acquiring LVB is an Indian company, not branches of an overseas bank
• Crises like the 1997 Asian financial crisis and the 2008 Wall Street meltdown cautioned the RBI to mandate foreign bank’s operation in India and balance sheet to be a part of their main operation.
• Amalgamation, not a Merger: The deal is unfair to the many LVB shareholders and families of local community members, who have been holding the stock for decades, as the share value reduced to 0.
• Disclosure of Ultimate Beneficial Owners: There were suspicions stoked by the overseas addresses of some offshore investors and alleged links with some Indian shareholders of the bank.