Dhanvarsha makes unsolicited offer of Rs 300 cr to buy Dhanlaxmi Bank

The Dhanvarsha group, a Delhi-based diversified business house, has made an unsolicited offer to buy out the old-generation private sector lender Dhanlaxmi Bank.

According to sources familiar with the development, Dhanvarsha has offered Rs 11.85 per share, totalling Rs 300 crore, to acquire the entire equity stake in the bank. On Thursday, the bank’s stock closed at Rs 11.95, down 0.83 per cent, on the BSE. At current levels, its market cap is Rs 302.35 crore.

Dhanvarsha has sent its proposal to the board members of the Thrissur-based bank. If the board clears the proposal, then the deal will need the Reserve Bank of India’s (RBI’s) approval, among others, the sources said. The banking regulator will vet the ‘fit and proper’ criteria for a prospective entrant in the banking space.

Anshumman Joshi, chairman, Dhanvarsha group, confirmed to Business Standard that a proposal has been sent to the bank. “We are awaiting the acceptance of the offer by its shareholders. We will also need approval from the RBI,” said Joshi, adding that his group is ready to pick up whatever stake the RBI allows in the bank.

Dhanlaxmi Bank did not respond to questions sent by Business Standard.

The sources cited above said that on acceptance of its proposal by the bank’s board of directors, the Dhanvarsha group would conduct due diligence and submit a detailed proposal to the RBI. “Once approved by the RBI, we will start the process of open offer by our merchant bankers,” Dhanvarsha said in its proposal, according to the sources. 

Dhanlaxmi Bank, which has 245 branches, mostly in urban and semi-urban areas, had an asset book of Rs 14,169 crore as of June 2022. Its asset quality has shown an improving trend with gross non-performing assets, as a percentage of gross advances, down from 9.27 per cent in Q1 of 2021-22 to 6.35 per cent in Q1 of 2022-23. After posting a net profit of Rs 23.42 crore in the March quarter of 2021-22, the bank reported a net loss of Rs 26.43 crore in the first quarter of the current financial year. This was mainly due to negative other income of Rs 21.55 crore (due to mark-to-market losses on its bond portfolio amid rising interest rates), as compared to a positive figure of Rs 68.7 crore in the previous quarter. In the year-ago quarter, other income was Rs 28.13 crore.

The bank has improved its asset quality and profitability, but is in need of capital. The bank’s capital adequacy ratio was 12.19 per cent, with common equity tier-1 capital at 9.95 per cent, at the end of June.

The bank was looking to raise Rs 127 crore as equity capital through a 2:1 rights issue to improve its capital adequacy ratio to push its growth plans such as coming up with new branches and products. The bank is unable to appoint new directors owing to a legal tussle at the Kerala High Court, between the management and a group of shareholders. The shareholders had approached the court in an attempt to prevent the management from appointing new board members.

Last month, the Dhanvarsha group had shown interest in bailing out Mumbai’s City Cooperative Bank, with a Rs 200-crore capital infusion, with an aim to convert the cooperative bank into a small finance bank. The business interests of the Dhanvarsha group extend from banking, infrastructure, travel and tourism, to retail, pharmaceuticals, information technology and education, among others.