Dhanlaxmi sees a subdued EGM; financial concerns, rights issue discussed

Contrary to expectations, Thrissur-based Dhanlaxmi Bank saw a subdued extraordinary general meeting (EGM) on Sunday that got over within an hour’s time. The meeting discussed all issues raised by a group of 11 minority shareholders, including rising expenses, low capital adequacy, and the overall financial performance of the bank.

In addition, the planned rights issue was also discussed at the EGM, which had only three registered speakers. There was no resolution or outcome at the meeting. It was more of a question-and-answer session, said a source aware of the development.

The EGM was called by a group of minority shareholders unhappy with the workings of the bank and its financials. Together, they hold a sizeable 13.67 per cent of the bank’s equity. The leader of the group is B Ravindran Pillai, who holds 9.99 per cent equity.

This is not the first time the bank is seeing shareholder activism against the management; there were several in the past. There have been top-level exits as well.

Calling for the EGM, the shareholders had said the bank’s cost-to-income ratio had increased to alarming levels in the quarter ended December 2021 and it seemed to have no control over expenditure, especially legal and administrative. They were concerned with the way recruitments were happening and new branches being opened, although the ‘capital adequacy ratio (CAR) has been adversely commented on by the Reserve Bank of India (RBI)’.

The bank has five board members now, including two nominated by the RBI, although it has provision for 11 members.

The Securities and Exchange Board of India’s guidelines for listed companies require them to have at least six members on their boards.

A case open before the High Court of Kerala prevents the bank from appointing new directors. The current directors on the bank’s board are C K Gopinathan, who holds 10 per cent equity, Chief Executive Officer J K Sivan, independent director G Rajagoplan Nair, and two RBI nominees: D K Kashyap and Jayakumar Yarasi.

After the announcement at the EGM, the bank had filed police cases (Thrissur, Mumbai, and Chennai) against those said to be spreading rumours about its financial situation on social media.

The bank’s management was of the opinion that there were no major concerns and the bank had been reporting profits for several quarters with a liquidity coverage ratio of 365 per cent.

The bank was looking to raise Rs 127 crore as equity capital through a 2:1 rights issue to improve its CAR, which fell to 12.98 per cent as of March 2022. The capital raised through the rights issue is expected to improve CAR by 50 basis points (bps).1 bps is one hundredth of a percentage point.

During the fourth quarter of 2021-22 (FY22), the bank posted a fourfold rise in net profit to Rs 23.42 crore, driven by a dip in its bad loan ratio and improvement in interest income.

For FY22, its net profit dipped 3.5 per cent to Rs 35.9 crore. During the January-March quarter, the bank’s operating expenses rose to Rs 397 crore, from Rs 366 crore — an increase of about 9 per cent. Provisions more than doubled to Rs 97 crore, from Rs 43 crore.

Although the bank was under the RBI’s prompt corrective action framework in November 2015, it came out of the restrictions in September 2019.