Fitch downgrades Dhanlaxmi Bank

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Fitch downgrades Dhanlaxmi Bank

Rating agency Fitch today said it has downgraded the ratings of Dhanlaxmi Bank due to the risks to the operating performance of the Kerala-based private lender and the vulnerability of its capital ratios.

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Rating agency Fitch today said it has downgraded the ratings of Dhanlaxmi Bank due to the risks to the operating performance of the Kerala-based private lender and the vulnerability of its capital ratios. "Fitch Ratings has downgraded Dhanlaxmi Bank and its Rs 17-crore subordinated debt to long-term 'BBB-(ind)' from 'BBB(ind)' and simultaneously put them on Rating Watch Negative (RWN)," the agency said in a release here.

The downgrade comes at a time when the private lender posted a net loss of Rs 36.87 for the third quarter ended December 31. The rating agency believes there could be potential further losses emerging from the structural weaknesses of an elevated cost base and revenue pressures due to rapid expansion. "Such losses could adversely impact the bank's capitalisation and financial flexibility."

Fitch said the bank has a challenging task of addressing some structural issues. It noted that the bank's net interest margin is pressurised on the back of large reliance on high-cost wholesale deposits, while non-interest income has also been on a downward trajectory.

"The bank may have to shrink its loan book to conserve capital, which could further compress revenues," the agency said, adding that the asset quality has been stable so far. "The agency, therefore, remains cautious in view of the moderating economic growth, a still relatively high interest rate environment and low seasoning of a large part of its (the bank) loan portfolio," the release added.