Banking Central | A truce at last at Dhanlaxmi Bank

Dhanlaxmi Bank

Dhanlaxmi Bank, one of the oldest financial institutions from Kerala, has a history of endless internal tussles. There have been many cases of early exits both from the Board and the top management over the years. Most of these exits can be attributed to power struggles among a section of influential shareholders and the top executives time to time.

The list of premature exits is long.

There was even a case when the CEO was thrown out by minority shareholders presumably unhappy with the performance. The CEO alleged conspiracy. Such episodes severely affected the investor confidence in the bank. The instability at the top level arguably delayed decision making and put the bank far behind the competition. To cut a long story short, Dhanalaxmi was long associated with a failed top management who, in turn, blamed some shareholders for not letting them do their job.

Most recently, the fight was for Board seats. Some major shareholders wanted their nominees on the Board. The nominees moved the Kerala High Court armed with the country's top lawyers. The bank fought back. The court battle, in turn, prevented it from inducting new board members and raising fresh capital. The deadlock, logically, attracted the RBI's attention.

In the meanwhile, a section of shareholders moved an application for an extra ordinary general meeting (EGM) seeking to curb the powers of the CEO and assign one of the Board members to settle disputes with the court petitioners. A recent high court ruling said the petitions seeking board positions aren't maintainable. The shareholders later withdrew their EGM application after an agreement was reached with management to appoint three new directors on the Board, calling a truce.

This latest development means two things at the bank.

One, There is finally a truce between the warring factions which should probably help the management focus back on the business. Two, with new directors on the Board, the bank can now go for a rights issue to raise the emergency capital that it needs to meet the mandatory reserve requirements. For Dhanlaxmi, these are positive developments and should augur well for the bank in coming days.

Dhanlaxmi has played a critical role being a bank to the local population and business community since its inception in 1927. The birth of the bank itself is the result of efforts by a group of local businessmen. Over the years, the bank has made an attempt to grow to a pan-India bank. What was lacking so far is a stable top level. Repeated premature exits from key positions dented its image and shook investor confidence.

Till recently, the bank had only five members (excluding the two RBI directors and the CEO, only two!) on its Board. With fresh faces on the Board now, it has an opportunity to navigate the ship back to calm waters once again. That requires close coordination among shareholders and management. In the context of intense competition from rivals and threat of potential take overs, the sooner both parties realise this, the better.