Stormy Dhanlaxmi EGM on cards today under a cloud of allegations and exits

The Dhanlaxmi Bank EGM has been called by a group of eleven minority shareholders unhappy with the working of the bank, and its financials

It will be a less somnolent Sunday today in Thrissur for those interested in banking and finance. Dhanlaxmi Bank, the private sector bank with its headquarters in the Kerala city known for its temples and festivals, has an extraordinary general meeting (EGM) on Sunday that promises to be quite extraordinary as it comes in the wake of allegations, top-level exits, and shareholder activism.

The EGM has been called by a group of eleven minority shareholders unhappy with the working 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. The group has been miffed with the bank’s rising expenses, low capital adequacy, and overall financial performance.

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

What minority shareholders say

The minority shareholders say the bank’s cost-to-income ratio increased to an alarming level in the quarter ended December 2021 and it seems to have no control over expenditure, especially legal and administrative. They are concerned with the way recruitment is going and new branches being opened, although the “capital adequacy ratio 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, though it has a provision for eleven members. The Securities and Exchange Board of India’s guidelines require listed companies to have at least six members on their board.

A case currently open before the High Court of Kerala prevents the bank from appointing new directors. There are allegations that the independent directors want to take control of the bank and resist any move by shareholders to raise market capitalization. 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 Rajagopalan Nair, and the two RBI nominees: DK Kashyap and Jayakumar Yarasi.

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

What the management says

Sivan, the bank’s MD and CEO told the media there were no major concerns and the bank had been reporting profits for several quarters with a liquidity coverage ratio of 365 per cent. He said the bank had informed the shareholders that there were no huge threats.

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

During the fourth quarter of 2021-22, the bank posted a four-fold rise in net profit to Rs 23.42 crore, driven by a dip in its bad-loan ratio and improvement in interest income. For the full financial year 2021-22, its net profit dipped by 3.5 per cent to Rs 35.90 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. Though the bank was under the RBI’s prompt corrective action framework in November 2015, it came out of the restrictions in September 2019.

Recent exits

The bank has seen the exits of several top executives, including CEOs, chairmen and board members.

On May 1, 2022, Suseela Menon, an independent director, resigned from the bank citing personal reasons. Earlier, Sunil Gurbaxani was ousted as the CEO by shareholders in September 2020, after which he insinuated a conspiracy by shareholders.

December 2021 saw the resignation of the part-time chairman, G Subramonia Iyer. Another chairman and independent director, Sajeev Krishnan, resigned in June 2020. Both cited personal reasons for their exits. In 2019, the then MD and CEO, T Latha, also left the bank.