A HC ruling raises hopes of recovery for LVB bondholders

In a landmark order, the Madras High Court directed the Reserve Bank of India (RBI) to conduct a fresh valuation exercise based on which the regulator should reconsider its decision to write off the tier-2 bonds of Lakshmi Vilas Bank (LVB), which was merged with DBS Bank India in 2020. The order has given LVB’s tier-2 bondholders hope that they may recover their investments. Sangita Mehta explains what prompted the court to issue this order, why the bonds were written off, and its implications.

What is the dispute between LVB’s tier-2 bondholders and RBI?
In November 2020, private lender LVB said that following an RBI directive, it would write down its ₹318 crore of tier-2 bonds ahead of the merger with DBS Bank India. DBS acquired the bank by infusing ₹2,500 crore. The bondholders felt that they had been given a raw deal and sought legal remedy.

Why did RBI direct LVB to write down the bonds?