InvestorQ : Why are the holders of Tier-II bonds in Lakshmi Vilas Bank dragging DBS Bank to court over the write-down?
manisha Kolvenkar made post

Why are the holders of Tier-II bonds in Lakshmi Vilas Bank dragging DBS Bank to court over the write-down?

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Crowny Pinto answered.
4 months ago
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Tier 2 bonds are bonds that are treated as quasi equity wherein the bond holders can lose the entire principal value in specific cases of bankruptcy or dissolution. In the case of Lakshmi Vilas Bank, when the RBI worked out the takeover of the bank by DCB Bank, the agreement was that the Tier-II bonds would be entirely written off and the bond holders would get nothing.

However, the bond holders are clearly not too pleased with this decision as this is the second time that it is happening withing one year after similar Tier-II bonds were written off by Yes Bank also when it got restructured under the aegis of SBI. Therefore, the holders of Tier-II bonds in Lakshmi Vilas Bank, which were written down to zero, have decided to initiate legal action against DBS.

During the year 2020, LVB became the second scheduled bank after Yes Bank to fall into a deep liquidity crisis and the RBI had to intervene to bail out the bank. In a first, the RBI this time had called upon a private bank DBS of Singapore to bail out LBV. It may be recollected that DBS India had then acquired LVB last year to rescue the bank from a liquidity crisis.

Now, DBS Bank of Singapore has confirmed that it was facing legal hurdles in various Indian courts of law against the decision to write down the Tier-II bonds value to zero. DBS has, however, confirmed that it does not have any incremental unprovided risk on account of these lawsuits. The investors may have little recourse as the merger was approved by RBI and the MOF and even the write-off of Tier-II bonds was part of the rescue deal.

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