Is Dhanlaxmi Bank up for sale?
Markets are far from scotching speculations on Thrissur-based Dhanlaxmi Bank. The old generation lender posted a net loss of around Rs 19 crore in the July-September quarter. This was the fourth consecutive quarter that the bank recorded net loss. Is the bank up for sale?
November 21, 2012 / 08:54 IST
Saikat Das
moneycontrol.com
Markets are far from scotching speculations on Thrissur-based Dhanlaxmi Bank. The old generation lender posted a net loss of around Rs 19 crore in the July-September quarter. This was the fourth consecutive quarter that the bank recorded net loss. Jittery investors pressed the panic button anticipating that the Reserve Bank of India (RBI) might now proceed for a forced merger of the private sector lender (with a bigger bank), which had gone through a management change in February, 2012. Markets were agog with names like Axis Bank and HDFC Bank as potential acquirers. Dhanlaxmi shares plunged nearly 7% on the result day. In the last five trading sessions, shares price diminished by 5%. Shares closed at Rs 57 on Monday, a tad up from its previous close. Is the bank up for sale?It does not seem to be, at least in the next six months. Unless the bank comes out of the wood, according to a section of market analysts, there will not be any taker for the bank. The lender is fraught with poor financials. "The bank is expected to turn profitable by March 31, 2013 although it will take time to wipe out the entire accumulated losses. Even the second quarter results were almost as per the growth plan submitted to RBI. The regulator has not sent any fresh communique. However, it is closely monitoring the bank's operations. It would continue to do so till the fiscal year ends," he said urging no near term possibility of merger," an insider told moneycontrol.com on condition of anonymity. Moreover, it is currently mulling to raise Rs 150-200 crore equity capital through qualified institutional placement (QIP). If the bank manages to mop up such funds, it will maintain a capital adequacy ratio of around 12% as against 10.90% in Q2, FY13. "Why would a bank come to the market for raising funds, if it is interested in merger," asked an investors' relation manager (institutional equity) from a big equity broking firm."The bank is certainly not up for sale at least for the time being. However, it remains a potential target for acquisition in the long run. Currently, another south based bank is a preferred bet, wherein big investors are taking positions," he said ruling out any immediate possibility of M&A deal on Dhanlaxmi Bank. The management-takeThe new management took over in February, 2012 after Amitabh Chaturvedi, the former MD & CEO, had quit following disagreement with the board on several issues ranging from profitability, high salary to union related problems. P. G. Jayakumar, the then serving executive director, was made the new managing director of the bank. The new management had submitted a revival plan to RBI, which was duly approved. The new MD firstly resorted to cost cutting measures by reducing salaries of highly paid officials. This virtually led to exodus especially those who belonged to the earlier management. Of late, senior officials including its CFO - Bipin Kabra, Rajrishi Singhal and others too resigned. The bank last recorded a net profit of Rs 4.35 crore in Q2, 2011-12. During the July-September quarter, FY13 operating expenses nearly halved to Rs 69 crore from Rs 112 crore a year back. Employee cost reduced from Rs 68 crore to Rs 45 crore y-o-y. The existing management strongly disapproves such hefty pay packets terming it - "exorbitant component that has brought nothing to the table". The bank's latest loss has come on the back of higher provisions against bad loans, which increased from Rs 5.31 crore to more than Rs 29 crore y-o-y. Lack of proper loan appraisal process earlier, according to a senior bank official, was responsible for the spurt in bad loans. Mostly, it has come from retail credit. The bank is trying to strengthen its credit monitoring system. "The new management has to prove its mettle. Even if the valuation is cheap right now but nobody will be ready to pay any price for an ailing entity. It has to reach to minimum benchmark level. It is also going through some trade union issues. Only then, it can be offered for sale," quipped a banking analyst from a domestic brokerage. saikat.das@network18online.com Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
