Foreign companies now can easily take over any ailing Indian company. Yes. This seems to be unbelievable, but true. Thanks to the loophole in the laws that made a foreign company take over an Indian Bank albeit legally.
According to the industry sources, the age-old acts have facilitated this and the recent DBS Bank taking over the ailing Lakshmi Vilas Bank is any indication to this effect. Let us see what happened during the last 7 months.
The Reserve Bank of India (RBI) declared a moratorium of One month for Lakshmi Vilas Bank and permitted DBS India to take over it as it had ended up in huge losses. As on date, the entire Capital of Lakshmi Vilas Bank was wiped out by the accumulation of huge losses during the last two years. But the tragedy is that DBS India Ltd is a Singapore Government company, not listed in India having very few branches in Metros.
As DBS India Ltd is an Indian company, legally having a CEO from India and head quartered in India and registered under Companies Act 1956, it is a Desi company so it can take over any Indian company or a bank with 100% share totally.
The loophole in our Acts and Laws was exposed by DBS India. If it is a foreign company they can takeover up to 74% of the shares only in any Indian companies or banks or insurance companies.
Last week Stock Exchange Board of India (SEBI) warned that Foreign companies or FIIs (Foreign Investment Institutions) in HDFC Bank touched 72% and not permitted to touch 74% holding by Foreign companies or FIIs.
But the fact remains that within that 72% share in HDFC Bank, the US-based JP Morgan Chase Bank (US) share was 16.49%. So, if JP Morgan Chase Bank opens a separate branch with Indian registration in the metro, they can purchase all shares of HDFC Bank in the open market and control 100% stake also.
When Global Trust Bank Ltd was closed on August 14, 2004, and merged into Oriental Bank of Commerce, (OBC), the OBC was not a listed company. But the Global Trust Bank was listed in Bombay Stock Exchange (BSE). This has resulted in wiping out of all shares of the shareholders. Not a single penny was received by any Shareholder of Global Trust Bank including Goldman Sachs company with 4% shares and International Finance Company with 5% share in Global Trust Bank. Many of those shareholders went to court also for some stake in OBC or some money for their shares, but the court disallowed them as OBC Bank was not listed in 2004.
The same story seems to have repeated now with DBS India Ltd taking over Lakshmi Vilas Bank though it is not listed either in BSE or in NSE or in any other Stock Exchange of India. Hence, the shares of the shareholders of LVB will be wiped out completely. The history will repeat for itself in this case.
On top of it, DBS India declared that they infuse fresh capital of Rs.2500 crore being funded by Singapore Government in LVB to run the business in 564 branches seamlessly.
India Bulls Housing Ltd with 4.99% share, M/s. Srei Infrastructure Finance Ltd with 3.34% share and Capri Global with 3.82% shares in LVB bank will be affected seriously as they don’t get even a single rupee for the huge investment they made in LVB.
There are several foreign companies registered in India such as Vivo, Oppo phones, KIA cars, City Bank etc will have a great opportunity to grab 100% share in Indian companies or banks etc. unless Modi government amend laws to this effect quickly. Otherwise, the Sword of Damocles continues to hang on our head.