Back-to-back senior-level exits continue to haunt Dhanlaxmi Bank

Back-to-back resignations by top executives of Dhanlaxmi Bank have once again turned the spotlight on the Thrissur-based lender.

The latest was the resignation of G Subramonia Iyer, the part-time chairman of the bank.

The announcement came as a surprise to many. Iyer had retired as executive director at Uco Bank and was one of the three members of a committee of directors appointed by the Reserve Bank of India in October 2020 to run the bank after shareholders voted out Sunil Gurbaxani as CEO.

Iyer was appointed part-time chairman in February 2021. The bank said in a stock exchange filing on December 2 that Iyer stepped down due to “certain urgent and emergent domestic and personal reasons and there were no other material reasons for his resignation.”

“There were no publicly known differences between him and the board. He was appointed only early this year,” said one person who closely tracks the bank.

Not the first case

Iyer isn’t the first Dhanlaxmi Bank chairman to quit ahead of term. Sajeev Krishnan, part-time chairman and independent director of Dhanlaxmi Bank, resigned on June 29, 2020, citing personal reasons. In 2019, MD and CEO T Latha resigned before her term ended.

Following Krishnan’s resignation last year, two board members quit – KN Murali, independent director, and G Venkatanarayanan, additional director. Jayaram Nayar, former chairman, resigned citing personal reasons.

What are the actual reasons?

While personal reasons were officially cited for most of the premature resignations, fights between some board members and prominent investors could have played a role, insiders alleged.

“There is a strong power struggle at the top between some shareholders and the management. The shareholders want the board and the management to follow their wishes, which often lead to conflicts,” a former employee of the bank said on condition of anonymity.

Such resignations can damage the bank’s business and ability to attract fresh investors, said a former CEO of the bank.

“These are responsible positions. People resigning from chairman and CEO posts abruptly do not augur well for the bank,” said the former CEO on condition of anonymity.

Worsening financials

The unrest at the top is taking place when the bank’s financials are on shaky ground. Dhanlaxmi Bank reported a 74 per cent plunge in net profit to Rs 3.66 crore in the quarter ended September as provisions rose due to a spike in bad loans.

Interest income fell to Rs 229 crore from Rs 243.97 crore a year earlier, while other income increased to Rs 37.58 crore from Rs 5.69 crore. Provisions for bad loans and contingencies rose to Rs 22.4 crore from Rs 4.29 crore.

Troubled past

On September 30 last year, Gurbaxani was ousted as CEO by shareholders at the annual general meeting. Later, Gurbaxani told Moneycontrol in an interview that Dhanlaxmi Bank needed surgery to resolve long standing governance issues.

“The deeper governance issues in the bank need surgery and not a bandage solution,” Gurbaxani said. Issues that have been chronic for many years and the exit of many previous officials including MDs and part-time chairman, speak volumes about the lack of governance and deserve investigation, he said.

Differences at the top are not new for Dhanlaxmi Bank. A letter written by former director K Jayakumar to the chairman after his resignation in April 2016 offers some clues.

Former and serving senior executives told Moneycontrol that many points raised by Jayakumar, mainly the dominance of the management over the board, are still valid. These differences could have played a role in the recent exits, they said.

“I have lost faith in the capacity of this management and its ethos… I wonder why the initiatives approved by the board and the several suggestions and admonitions of the RBI have repeatedly failed to yield the desired results. I am shocked by the abysmal lack of grace in dealing with difficult situations,” Jayakumar wrote in the letter, a copy of which is with Moneycontrol.

Jayakumar referred to ego clashes, human resources policies and governance issues.

“They (management) seem to presume that the directors have to be necessarily ‘yes men.’ Any note different from ‘his master’s voice’ is unacceptable. ‘Dissent with dignity’ seems to be unknown in their lexicon. Once a director (who is paradoxically called independent director!) is suspected to have different views, then he has to be side-lined, if not humiliated,” Jayakumar said. “I am pained at the short-sightedness that fails to regard the commitment and contentment of the employees as paramount for the survival and success of the bank in its darkest hour.”

Powerful shareholders

Dhanlaxmi Bank has local businessmen as investors who are said to be influential in deciding how the bank is run.

Ravi Pillai, a former director, owns 10 percent in the bank. CK Gopinathan, who is a director, holds a little less than 10 percent along with two family members.

Other shareholders include MA Yussuffali (5 percent) and Kapil Wadhawan (5 percent), P Raja Mohan Rao (2.44  percent), Shital Raghu Kataria (2.63 percent) and Vespera Fund (4.43 percent).

In September, some former directors asked the Kerala High Court to direct the bank to consider their candidature as directors. The petitioners included KM Madhusoodanan, P Mohanan and Prakash DL. The matter is still in court.