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Indian govt seizes Chennai bank with “serious governance issues” and “forces” merger with DBS Bank India

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It was reported in the Indian media today that India’s central bank, Reserve Bank of India (RBI), has seized control of the struggling Lakshmi Vilas Bank (LVB) and “forced a merger” with DBS Bank India Ltd (DBIL), which is wholly owned by DBS Singapore (‘RBI brings in DBS’ India unit to save Lakshmi Vilas Bank‘, 18 Nov).

Mint, an Indian financial daily, reported, “The (Indian) banking regulator on Tuesday (17 Nov) seized control of the struggling Lakshmi Vilas Bank (LVB) and forced a merger with the local unit of Singapore’s largest lender DBS Bank, the first time the central bank has tapped a bank with a foreign parent to backstop an Indian rival.”

Bloomberg, on the other hand, described the merger as a “rescue effort” by DBS Bank. An institutional investor advisor told Bloomberg that LVB, based in Chennai, was “pretty much insolvent” and that “the writing has been on the wall for a while”.

And according to the Hans India, it reported, “The move (merger) is being termed in the financial world as the fastest resolution of a failed bank.”

LVB gasping for capital while experiencing “serious governance issues”

Mint said that RBI’s surprise intervention to force the capital-starved LVB to merge with the stronger DBIL came after watching LVB struggled to find a suitor to help it meet minimum capital requirement, thereby saving LVB.

The bank has been in a bad shape for some times and desperately gasping for capital. Not only did its capital adequacy ratio fail to meet regulatory norms, but the ratio had also turned negative in the Sep quarter. Its capital adequacy ratio (CAR) shrank to -2.85% as at end Sep, against a regulatory minimum of 10.875%.

The bank’s loss has also widened to Rs397 crore (S$72 million) in the Sep quarter from Rs357 crore (S$64 million) loss a year earlier. It has been under RBI’s radar for prompt corrective action (PCA) since Sep last year.

“The financial position of Lakshmi Vilas Bank Ltd (the bank) has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth. In the absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue,” RBI said.

LVB is also experiencing a continuous withdrawal of deposits and low levels of liquidity, RBI added. More importantly, RBI revealed, “It (LVB) has also experienced serious governance issues and practices in recent years, which have led to a deterioration in its performance.”

LVB’s entire capital to be written off after merger with DBIL

As part of the merger process, RBI has capped withdrawals at Rs25,000 (S$450) at LVB for a month.

It’s entire capital will also be written off after the merger with DBIL. “The entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the LVB, shall stand written off,” a RBI notification said. “The transferor bank (LVB) shall cease to exist by operation of the scheme, and its shares or debentures listed on any stock exchange shall stand delisted.”

That is to say, with the write-off in paid-up share capital and reserves and surplus, the bank’s equity will go down to zero.

This is the third time in about a year that RBI has seized control of a bank. The other two were Punjab and Maharashtra Co-operative (PMC) Bank and Yes Bank Ltd. Many banks are under pressure in India due to bad loans. Going through legal means to get back money from debtors is also tricky in India as court cases can easily drag over 20 to 30 years (‘India’s dysfunctional court system with 40 million pending cases threatens CECA deals‘).

Meanwhile, RBI praises DBIL saying that it has the advantage of strong parentage linking back to DBS Singapore. RBI further disclosed, “It (DBIL) will bring in additional capital of Rs2,500 crore (S$450 million) upfront to support credit growth of the merged entity.”

RBI added that the combined balance sheet of DBIL and LVB would remain healthy after the merger, with capital to risk-weighted assets ratio (CRAR) at 12.51%, without taking into account the infusion of additional capital.

But in case of any debentures, bonds, or any other financial instruments owed to creditors by LVB, DBIL will have to pay the creditors out of its own accounts, according to the terms of the merger.

DBS Bank India welcomes merger with struggling LVB

In a statement, DBIL welcomed the merger. It said, “The proposed amalgamation will provide stability and better prospects to Lakshmi Vilas Bank’s depositors, customers and employees following a time of uncertainty.”

“At the same time, the proposed amalgamation will allow DBIL to scale its customer base and network, particularly in south India, which has longstanding and close business ties with Singapore.”

DBIL added that the capital infusion into LVB will be funded from its existing resources.

The sudden move by RBI to get LVB to merge with DBIL is said to have also taken employees’ union at LVB by surprise. A senior union member has declined to comment as they said they have yet to see the details of the merger.

It’s not known what the unions at LVB would demand from its new owner DBIL.

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Chee Soon Juan questions Shanmugam’s $88 million property sale amid silence from Mainstream Media

Dr Chee Soon Juan of the SDP raised concerns about the S$88 million sale of Mr K Shanmugam’s Good Class Bungalow at Astrid Hill, questioning transparency and the lack of mainstream media coverage. He called for clarity on the buyer, valuation, and potential conflicts of interest.

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On Sunday (22 Sep), Dr Chee Soon Juan, Secretary General of the Singapore Democratic Party (SDP), issued a public statement on Facebook, expressing concerns regarding the sale of Minister for Home Affairs and Law, Mr K Shanmugam’s Good Class Bungalow (GCB) at Astrid Hill.

Dr Chee questioned the transparency of the S$88 million transaction and the absence of mainstream media coverage despite widespread discussion online.

According to multiple reports cited by Dr Chee, Mr Shanmugam’s property was transferred in August 2023 to UBS Trustees (Singapore) Pte Ltd, which holds the property in trust under the Jasmine Villa Settlement.

Dr Chee’s statement focused on two primary concerns: the lack of response from Mr Shanmugam regarding the transaction and the silence of major media outlets, including Singapore Press Holdings and Mediacorp.

He argued that, given the ongoing public discourse and the relevance of property prices in Singapore, the sale of a high-value asset by a public official warranted further scrutiny.

In his Facebook post, Dr Chee posed several questions directed at Mr Shanmugam and the government:

  1. Who purchased the property, and is the buyer a Singaporean citizen?
  2. Who owns Jasmine Villa Settlement?
  3. Were former Prime Minister Lee Hsien Loong and current Prime Minister Lawrence Wong informed of the transaction, and what were their responses?
  4. How was it ensured that the funds were not linked to money laundering?
  5. How was the property’s valuation determined, and by whom?

The Astrid Hill property, originally purchased by Mr Shanmugam in 2003 for S$7.95 million, saw a significant increase in value, aligning with the high-end status of District 10, where it is located. The 3,170.7 square-meter property was sold for S$88 million in August 2023.

Dr Chee highlighted that, despite Mr Shanmugam’s detailed responses regarding the Ridout Road property, no such transparency had been offered in relation to the Astrid Hill sale.

He argued that the lack of mainstream media coverage was particularly concerning, as public interest in the sale is high. Dr Chee emphasized that property prices and housing affordability are critical issues in Singapore, and transparency from public officials is essential to maintain trust.

Dr Chee emphasized that the Ministerial Code of Conduct unambiguously states: “A Minister must scrupulously avoid any actual or apparent conflict of interest between his office and his private financial interests.”

He concluded his statement by reiterating the need for Mr Shanmugam to address the questions raised, as the matter involves not only the Minister himself but also the integrity of the government and its responsibility to the public.

The supposed sale of Mr Shamugam’s Astrid Hill property took place just a month after Mr Shanmugam spoke in Parliament over his rental of a state-owned bungalow at Ridout Road via a ministerial statement addressing potential conflicts of interest.

At that time, Mr Shanmugam explained that his decision to sell his home was due to concerns about over-investment in a single asset, noting that his financial planning prompted him to sell the property and move into rental accommodation.

The Ridout Road saga last year centred on concerns about Mr Shanmugam’s rental of a sprawling black-and-white colonial bungalow, occupying a massive plot of land, managed by the Singapore Land Authority (SLA), which he oversees in his capacity as Minister for Law. Minister for Foreign Affairs, Dr Vivian Balakrishnan, also rented a similarly expansive property nearby.

Mr Shanmugam is said to have recused himself from the decision-making process, and a subsequent investigation by the Corrupt Practices Investigation Bureau (CPIB) found no wrongdoing while Senior Minister Teo Chee Hean confirmed in Parliament that Mr Shanmugam had removed himself from any decisions involving the property.

As of now, Mr Shanmugam has not commented publicly on the sale of his Astrid Hill property.

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Redditors question support for PAP over perceived arrogance and authoritarian attitude

Despite Senior Minister Lee Hsien Loong’s warning that slimmer electoral margins would limit the government’s political space “to do the right things”, many Redditors questioned their support for the ruling PAP, criticising its perceived arrogance. They argued that SM Lee’s remarks show the party has ‘lost its ways’ and acts as if it alone can determine what is right. Others noted that the PAP’s supermajority allows for the passage of unfavourable policies without adequate scrutiny.

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In a recent speech, Senior Minister Lee Hsien Loong warned that “if electoral margins get slimmer, the government will have less political space to do the right things.”

Mr Lee, who served as Prime Minister for 20 years, highlighted the risks associated with increasingly competitive politics.

“It will become harder to disregard short-term considerations in decision-making. The political dynamics will become very different,” he stated during his speech at the Annual Public Service Leadership Ceremony 2024 on 17 September.

“Singaporeans must understand the dangers this creates, and so must the public service,” SM Lee stressed.

SM Lee pointed out that Singapore faces formidable internal and external challenges in the years ahead, with rising expectations and demands from citizens.

As growth becomes harder to achieve and politics becomes more fiercely contested, he warned, “Things can go wrong for Singapore too.”

He urged vigilance in preparing for an uncertain future, noting, “As the world changes, and as the generations change, we must do our best to renew our system – to ensure that it continues to work well for us, even as things change.”

Critique of PAP’s Arrogance and Disconnect from Singaporeans

The People’s Action Party (PAP) experienced a notable decline in its vote share during the 2020 General Election, securing 61.24% of the votes and winning 83 out of 93 seats, a drop from 69.9% in 2015.

A significant loss was in Sengkang GRC, where the PAP team, led by former Minister Ng Chee Meng, was defeated by the Workers’ Party (WP).

In discussions on Reddit, some users questioned why they should support the ruling PAP, criticising the party’s perceived arrogance.

They pointed out that SM Lee’s recent remarks illustrate that the party has strayed from effectively serving Singaporeans and seems to believe it has the sole authority to decide what is right.

Others highlighted that the PAP’s super-majority in Parliament enables the passage of unfavourable policies without sufficient scrutiny.

One comment acknowledged that while many older Singaporeans remain loyal to the PAP due to its past achievements, younger generations feel the party has failed to deliver similar results.

There is significant frustration that essentials like housing and the cost of living have become less affordable compared to previous generations.

The comment emphasised the importance of the 2011 election results, which they believe compelled the PAP to reassess its policies, especially concerning foreign labor and job security.

He suggested that to retain voter support, the PAP must continue to ensure a good material standard of living.

“Then, I ask you, vote PAP for what? They deserve to lose a supermajority. Or else why would they continue to deliver the same promises they delivered to our parents? What else would get a bunch of clueless bureaucrats to recognise their problems?”

Emphasising Government Accountability to the Public

Another Redditor argued that it is the government’s responsibility to be accountable to the people.

He further challenged SM Lee’s assertion about having less political space to do the right things, questioning his authority to define what is “right” for Singapore.

The comment criticised initiatives like the Founder’s Memorial and the NS Square, suggesting they may serve to boost the egos of a few rather than benefit the broader population. The Redditor also questioned the justification for GST hikes amid rising living costs.

“Policies should always be enacted to the benefit of the people, and it should always be the people who decide what is the best course of action for our country. No one should decide that other than us.”

The comment called for an end to narratives that present the PAP as the only party capable of rescuing Singapore from crises, stating that the country has moved past the existential challenges of its founding era and that innovative ideas can come from beyond a single political party.

Another comment echoed this sentiment, noting that by stating this, SM Lee seemingly expects Singaporeans to accept the PAP’s assumption that they—and by extension, the government and public service—will generally do the “right things.”

“What is conveniently overlooked is that the point of having elections is to have us examine for ourselves if we accept that very premise, and vote accordingly.”

A comment further argued that simply losing a supermajority does not equate to a lack of political space for the government to make the right decisions.

The Redditor express frustration with SM Lee’s rhetoric, suggesting that he is manipulating public perception to justify arbitrary changes to the constitution.

Concerns Over PAP’s Supermajority in Parliament

Another comment pointed out that the PAP’s supermajority in Parliament enables the passage of questionable and controversial policies, bypassing robust debate and discussion.

The comment highlighted the contentious constitutional amendments made in late 2016, which reserved the elected presidency for candidates from a specific racial group if no president from that group had served in the previous five terms.

A comment highlighted the contrast: in the past, the PAP enjoyed a wide electoral margin because citizens believed they governed effectively. Now, the PAP claims that without a substantial electoral margin, they cannot govern well.

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