This Time, India Is Getting a Bank Rescue Right

Another Indian bank has failed, the third collapse of a major deposit-taking institution in 15 months and the first since the onset of the coronavirus pandemic. But instead of allowing a zombie lender to linger after a half-baked rescue, the central bank has wisely decided to put Lakshmi Vilas Bank Ltd. out of its misery. Better still, it’s called upon a foreign institution to take over the assets and liabilities. That should stoke interest of other global banks.

The moth-eaten LVB will cease to exist, its equity completely wiped out. Only its deposits will appear on the books of the India unit of DBS Group Holdings Ltd., Singapore’s biggest bank. This is a much cleaner solution than how the Reserve Bank of India handled the implosion last September of Punjab & Maharashtra Co-operative Bank Ltd., whose loan book was basically tied to one bankrupt shantytown developer. The scam-tainted lender is trying to sell itself, though it’s unclear why anyone would touch it with a barge pole. More than a year later, larger PMC depositors still remain trapped, under orders from the RBI.