Lakshmi Vilas Bank writes down tier 2 bonds worth Rs 320 crore

Kolkata: A majority of bond holders of Lakshmi Vilas Bank have lost the value of their investment as the bank has written down Basel III-compliant tier 2 bonds worth Rs 320 crore under Reserve Bank of India direction.

The development took place Thursday, a day before LBV's amalgamation with DBS Bank India, even as promoters and shareholders of the old generation lender moved Bombay High against the decision of extinguishing their equity investment.

The banking regulator has told LVB administrator that the process of writing down has to be completed before the scheme of amalgamation with DBS Bank India. ET has seen a copy of the note.

“If the relevant authorities decide to reconstitute the bank or amalgamate the bank with any other bank under Section 45 of the Banking Regulation Act, 1949, such a bank shall be deemed as non-viable or approaching non-viability and both the pre-specified trigger and the trigger at the point of non-viability for write down of the bonds shall be activated,” RBI said in the note.

Under the guidelines, Basel III-compliant, additional tier-1 (AT-1) and tier-2 instruments absorb losses through conversion into common equity and can be written down, experts said. The bank doesn’t have any AT-1 instruments. Out of Rs 368.70 crore of tier 2 bonds, paper worth Rs 318.20 crore is liable to be written off, they said.