Employees of Lakshmi Vilas Bank (LVB) have written to the Reserve Bank of India (RBI) to reconsider its decision to merge the bank with a culturally different foreign bank and instead amalgamate it with an Indian public-sector bank.

As the majority of its branches are in Tier VI towns, Naxal-affected belts and unbanked locations, employees also fear that these may be closed down. According to the RBI's draft scheme of amalgamation, DBS can shut down or merge branches and also reduce employee strength. Foreign banks, the banking union body said, have a penchant for scaling down operations and shutting businesses.

"The RBI has acted in stealth. This is the first closure and a merger with no compensation to the shareholders. The bank is being given away for free. There are thousands of finance companies, banks and professionals in the country. Why did it choose a foreign bank? I am bringing it to the notice of the Finance Minister Nirmala Sitharaman. It is the beginning of many such takeovers by foreign banks," said All India Bank Employees' Association (AIBEA) general secretary CH Venkatachalam .

LVB was set up in 1926 to cater to the financial needs of the textile town of Karur. It obtained its banking licence in June 1926 and started off as a scheduled commercial bank from the same year in August. As of September 2020, the bank had 563 branches and 974 ATMs.

The government of India, Life Insurance Corporation of India (LIC) and the general public hold 93.20% stake in the bank. The government holds 5.8 lakh shares and LIC holds 54.71 shares while the general public hold 30.74 crore shares. The 98,000 shares worth Rs 338 crore will come to nought with the merger, despite the bank having so much of real estate and physical assets.

In April 2020, the People's Bank of China raised its stake in India's largest non-banking mortgage provider HDFC. After that the central government revised India's foreign direct investment (FDI) policy. The revised FDI policy says that investments from China will now require clearance from the central government. A non-resident entity can invest in India subject to the FDI, except in those sectors or activities which are prohibited. However, an entity of a country which shares a land border with India can invest only under the government route. In the LVB case, the entire shareholding pattern is being shifted to a private entity which is a wholly owned subsidiary in India of a foreign entity (DBS Group).

The letter said that most of the employees have more than 20 years of service and they fear they will be unable to cope with the culture of a foreign bank. The letter, a copy of which is with Indianbankingnews.com, was written under the aegis of Lakshmi Vilas Bank Employees' Union and Lakshmi Vilas Bank Officers' Association.

"Taking into consideration we request the RBI to revisit its stand on the proposed amalgamation in the interest of the existing customers, depositors, poor and needy people in the rural and inhospitable areas, and the bank's existing employees. Please merge Lakshmi Vilas with a public-sector bank," the employees told the regulator.