20% fall in Lakshmi Vilas Bank – safeguarding the interests of investors

The declaration of moratorium by RBI on the private lender LVB (Lakshmi Vilas Bank) and the announcement for amalgamation of LVB with the Development Bank of Singapore (DBS) has increased the chaos for the share holders. It has been reported that DBS is looking for investing $340 million into the merger and the newly formed merged entity will be having a capital adequacy of 12.51 per cent. It can be a sign of relief on the grounds of capital adequacy. But this safeguards the employees and depositors only because the shareholders are destined to lose a significant per cent of their investment. The shares of LVB hit the lower circuit on 18th November, 20 per cent down and there is surely more pain in the offing.

Now an obvious question arising out of the situation is – how the interests of investors can be safeguarded, but there is no full proof strategy for the same. Eternal vigilance on the part of investors can only help in safeguarding their interests. Investors should choose only top quality names which are having excellent track records for their investments. Market signals can provide further guidance to the investors.

Also, it is important to note that there are various perceived quality private sector banks, which have suddenly fell from grace to disgrace like Yes Bank. Therefore, it is very important to invest only in top quality names on the grounds of strong and long track records of governance and impeccable managerial competence. Vigilance on the performance of the bank is very important and any slippage or change in asset quality should be closely monitored. It must be remembered that eternal vigilance is the price of a good investment.

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