On June 12, Dhanlaxmi Bank held an extra ordinary general meeting (EGM) after a section of shareholders called for the same, citing worsening financial condition of the bank and rising expenses. Here is an explainer on why the shareholders are worried and other related developments in the bank.
What happened in the latest development?
In a letter to the Board on April 28, these shareholders warned of an impending financial crisis at the bank, citing uncontrolled expenditure resulting in a worsening cost-to-income ratio and falling capital adequacy. Following this, the bank called an EGM on June 12.
The Bank is passing through a financial crisis as is evident from the results for the quarter ended December 31, 2021, and the Cost to Income Ratio has risen to alarming proportions, the shareholders said. The bank is not having any effective control over expenditure especially Legal and Administrative, said the shareholder letter.
What did the shareholders demand?
The Bank is going to start new branches and recruit fresh personnel even though the CAR of the Bank has been adversely commented on by the RBI. A detailed discussion on the financial position of the Bank, especially the abnormal increase under expenditure, has to be initiated by the Bank, said the letter, which was signed by 11 shareholders.
So, what happened in the EGM?
Surprisingly, the EGM turned out to be a quiet affair with no major discussion on the issues highlighted by the shareholders in the letter, according to people attended the meeting. According to insiders, one reason could be hurried last minute negotiations between unhappy shareholders and the bank.
What is the composition of Dhanlaxmi Board?
At present, Dhanlaxmi Bank has five members which include the CEO, two RBI-appointed nominees, investor C K Gopinath and independent director G Rajagopalan Nair. This is against the full strength of around nine members. The fall in number of board members to minimum has raised concerns among experts.
Who are the shareholders of the bank?
A clutch of wealthy local businessmen are the major shareholders in Dhanlaxmi Bank. The shareholders include C K Gopinathan and Ravi Pillai who holds 10 percent each, MA Yussuffali (5 percent), Kapil Wadhawan (5 percent), Shital Raghu Kataria (2.63 percent) and Vespera Fund (4.42 percent).
Why have some former directors moved court?
A few former directors had moved the High Court seeking a judicial intervention to direct the Bank to place their candidature for directorship at the Annual General Meeting. The petitioners are K M Madhusoodanan, P Mohanan and Prakash DL.
What’s the financial situation of the bank?
In the March quarter, Dhanlaxmi Bank reported a profit but also a decline in capital adequacy ratio to 13 percent from 14.5 percent a year ago. Operating expenses rose to Rs 397 crore from Rs 366 crore, marking an increase of about 9 percent. Provisions more than doubled to Rs 97 crore from Rs 43 crore.
Going by the cash flow statement as of March, total cash flows declined to Rs 735.84 crore from Rs 985 crore in the year-ago period.
What are the reasons for back-to-back top level exits in the bank?
Former CEO Sunil Gurbaxani was ousted by shareholders in September 2020. Last December, G Subramonia Iyer, the part-time chairman of the bank, resigned citing personal reasons. 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. It is speculated that there have been differences among a section of Dhanlaxmi Bank investors and the board members in the past, which has led to back-to-back exits from the board and the top management.
What next in Dhanlaxmi Bank court battle?
A lot depends on the outcome of the case in Kerala High Court. If the petitioners emerge as victorious, a section of shareholders including those on the board can prove to be even more powerful influencing the running of the bank.
What is the RBI’s stance on Dhanlaxmi Bank?The RBI has been closely watching the situation at the bank. Dhanlaxmi bank was placed under the RBI’s prompt corrective action (PCA) framework in November 2015. The restriction was removed in September 2019, after the bank addressed the financial concerns. The RBI has two nominee directors on the board.