dhanlaxmi bank: Shareholders raise concerns over Dhanlaxmi Bank’s financial health, rising expenses

The minority shareholders of Kerala-based have flagged concern over the lender’s financial position, saying its cost of income ratio has risen to an alarming level and that it has lost control over expenditure. They have even forced the bank to call an extraordinary general meeting to discuss the matter.

“The bank is passing through a financial crisis, as is evident from the results for the quarter ended 31/12/2021, and the cost to income ratio has risen to alarming proportions,” a group of minority shareholders with a collective holding of 13.5 % said in a notice to the bank. “The bank is not having any effective control over expenditure, especially legal and administrative.”

The notice dated March 28 was received by the bank a month later, on April 28. The note forced the bank to convene an extraordinary general meeting (EGM).

According to rules, a group of shareholders that holds not less than one-tenth of the paid-up share capital on the date of the receipt of the requisition, carries the right of voting and can seek an EGM.

“The bank is going to start new branches and recruit fresh personnel even though the CAR (capital adequacy ratio) of the bank has been adversely commented on by the RBI,” the shareholders said in the notice. “A detailed discussion on the financial position of the bank, especially the abnormal increase under expenditure has to be initiated by the bank.”

Eleven shareholders, including B Ravindran Pillai, a Middle East-based billionaire and the head of RP Group, initiated the process. Pillai holds a 9.99% stake in the bank.

The shareholders acted on the basis of the December 2021-quarter result when the bank reported net profit of Rs 2 crore. The bank did not share details like cost to income ratio, which is one of the bones of contention.

For the quarter ending March 31, it reported a near five-fold rise in net profit to Rs 23.4 crore, while the annual net profit stood at Rs 36 crore.

The bank’s CAR, however, declined to 13% from 14.5% a year ago, while operating expenses of the bank rose by 8.5% to Rs 397 crore in FY22 from Rs 366 crore in the preceding fiscal. The bank’s cash flows at the end of March dipped to Rs 736 crore from Rs 985 crore.

On March 31, the bank had announced that it had received “in-principle” approval from the RBI for opening 20 branches and one administrative office as part of its FY23 expansion plan.

The RBI had eased the business restrictions on the 94-year-old lender under the prompt corrective action framework in February 2019. But last year, the bank again hit the headlines when its shareholders voted out RBI-approved managing director Sunil Gurbaxani. The bank is widely help but shareholders had clashed with the management over the alleged plan to diversify in north India.

Following this, the bank officers’ union All India Bank Officers’ Confederation (AIBOC), too, had requested the RBI to take steps to save the bank from misplaced priorities.

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