Dhanlaxmi Bank planning to raise Rs 127 crore via rights issue this month

The bank's capital adequacy ratio fell below 13% in the March quarter and capital raised via the rights issue is expected to boost it by 50 bps

Thrissur-based Dhanlaxmi Bank is planning to raise Rs 127 crore equity capital through a 2:1 rights issue by the end of the month to boost its capital adequacy ratio which fell to 12.98% as on end March. The capital raised via the rights issue is expected to boost the capital adequacy ratio by 50 bps.

Sources said the rights issue could be at a discount over the current share price. The shares of the bank are trading at Rs 12.73. The bank will seek Sebi approval for the issue in the next 10 days. Centrum Capital is the merchant banker for the issue.

The bank is planning to increase the credit-deposit ratio to 86% by the end of the current financial year, from 68% as of March 2022, for which it will need capital, a source in the bank said. The C/D ratio of the bank has improved from 59% in the last one year.

The bank exited the prompt corrective action framework of Reserve Bank of India in February 2019. However, governance issues continue to haunt the bank with three CEOs and two chairmen resigning in the last three years. Several board members also resigned from the bank and as a result there are only 5 members on the bank’s board – of which two are RBI nominated members. The bank has a provision of having 11 board members.

In October 2020, the shareholders voted out the then MD & CEO of Dhanlaxmi - Sunil Gurbaxani. In January 2021, J K Shivan – a former chief general manager of State Bank of India - was appointed as the new MD & CEO.

The bank showed a better performance in the fourth quarter with net profit improving to Rs 23.4 crore from Rs 5.28 crore during the same period of the previous financial year. The operating profit of the bank also reported healthy growth while fresh slippages were contained around the Rs 10 crore mark which helped the lender report lower gross and net non-performing assets.

As on March 2022, the gross non-performing assets of the bank were 6.32% of gross advances, down from 9.32% a year ago and net NPA ratio was 2.85% as compared to 4.76%.

The management of the bank is aiming to bring down the gross NPA ratio below 5% and net NPA ratio below 1% by the end of the current financial year.

Sources said the restructured pool of loans is Rs 350 crore and do not expect any substantial part slipping from that pool to the NPA category. The bank has a 10% provision for restructured loan.

On the net interest margin front, the bank aims to increase it to 3.25%, which was at 3% in the Jan-March quarter.