Dhanlaxmi Bank sacks senior executive after RBI directive

Kerala-based Dhanlaxmi Bank sacked a senior official last week after a directive from the Reserve Bank of India (RBI) citing failure to adhere to good corporate governance practices and the official’s alleged role in this issue, three persons familiar with the development told Moneycontrol. All of them declined to be named.

The officer, P Manikandan, was serving as a chief general manager in the Thrissur-based bank. Manikandan, one of the senior-most executives in the management, retired more than a year ago but continued on the post on contract.

The RBI sent a letter to the bank last Friday demanding Manikandan be sacked, citing corporate governance issues allegedly involving the officer, according to the persons quoted above, who asked not to be named. “The RBI letter asked the bank to sack the officer with immediate effect,” said one of the persons quoted above.

According to the persons quoted above, the letter refers to the regulator’s concerns on failure to adhere to good corporate governance practices in the bank. The RBI was alarmed about the bank’s corporate governance standards after three back to back senior-level exists in the bank in June.

Following the receipt of the RBI letter, the bank’s board members and top management officials met through a videoconference on Friday and sought the resignation of the CGM, said the people quoted above.

An email sent to the RBI seeking a response on the matter remained unanswered until the time of filing this story. Dhanlaxmi Bank’s Managing Director and CEO, Sunil Gurbaxani didn’t offer any immediate comments.  Manikandan was not immediately available for comment.

The Dhanlaxmi Bank board has been in a state of flux with a series of top-level exits, including that of the chairman. The first one was on June 29 when Sajeev Krishnan, part-time chairman and independent director, quit. Krishnan had joined the Kerala-headquartered bank in February 2018 for three years.

He had around eight months left. The other two were KN Murali, independent director, and G Venkatanarayanan, an additional director. Both resigned with effect from June 29, 2020, before their terms came to an end. Murali joined the bank nearly a year and a half ago while Venkatanarayanan joined only a few months ago.

Following these exits, the bank had appointed new board members. These include PK Vijayakumar, G Rajagopalan Nair, G Subramonia Iyer and Suseela Menon R, also as additional directors (Independent Category) to the board.

Manikandan joined Dhanlaxmi bank in 2005-2006. Before that, he was with Canara Bank and, for a brief stint, with the bank’s home finance subsidiary.

A divided house

According to the persons quoted above, there have been differences among the top management and the board for a while on various policy and operational issues, which led to these exits. Manikandan’s role in the bank even after his retirement too had come under question.

“As the RBI letter indicates, this particular officer was part of the faction that led to differences in the running of the bank,” said one of the persons quoted above.

One of the reasons for differences among different factions in the bank was divided opinion with respect to the issue of considering investments from a “North Indian lobby”, said one of the persons.

“The bank has been approached by certain investors for a significant stake. We do not want to sell the bank and lose the identity of this bank which has strong roots in Kerala,” the person said.

The problems in Dhanlaxmi Bank’s top date back to several years. A letter written by K Jayakumar, a former director to the chairman after his resignation in April 2016, provides some clues. Former and present senior executives Moneycontrol spoke to said many of the points raised by Jayakumar, mainly the dominance of management over the Board, still hold true. These differences could have played a role in exits of board members ahead of their term, they said. Moneycontrol has a copy of the letter.

The letter started on professional competency: “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…”

The letter then throws light on the ego clashes, HR policies and governance issues gnawing at the bank.

“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 sidelined, if not humiliated” Jayakumar had 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,” he said.

The management’s clash with trade unions, too, had played a key role in the exits of senior executives. For instance, one of the issues highlighted by Jayakumar was the sacking of a senior executive who was involved in trade union activities. The sacking of PV Mohanan, former general secretary of the Employees Association, had led to a month-long agitation.  Mohanan didn’t want to comment on this story.

Dhanlaxmi Bank on Monday posted a 69 percent decline in its net profit at Rs 6.09 crore for the first quarter ended June 2020 due to higher provisioning. The bank had registered a net profit of Rs 19.84 crore during the same quarter of the previous fiscal. On Monday, the bank’s shares were trading at Rs 13.45 apiece nearly the same as yesterday’s closing price.