Crisis in Dhanlakshmi bank averted for now, capital mobilisation to start soon

By R Roshan

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Dhanalakshmi Bank Head Quarters Thrissur | Wikipedia

Kochi: Thrissur-headquartered Dhanlakshmi Bank temporarily averted a financial crisis by appointing three new members to the bank's board of directors (BoD). Earlier, the bank fell into a fresh crisis after a section of shareholders, including businessman B Ravi Pillai, called an 'extraordinary general meeting' (EGM) to allegedly suspend the powers of JK Shivan, the Managing Director (MD) and Chief Executive Officer (CEO), over the bank's capital spending.

Shivan held talks with Ravi, who holds a 10 per cent share of the bank. Further, the bank cancelled the EGM on November 12.

For the last several years, the BoD only had five people, including MD JK Shivan and two representatives of the Reserve Bank of India. Entrepreneurs KN Madhusudhanan, Sreesankar Radhakrishnan, and Professor Nirmala Padmanabhan are the new members appointed to the BoD.

A shareholder-management dispute has plagued the bank since 2020. The bank's profit grew recently after a severe crisis. In March, the bank approved a proposed ₹127-crore rights issue (invitation to existing shareholders to purchase more shares). It is critical for the bank’s future solvency. However, a formal decision was pending due to lack of quorum in the BoD. With the number of directors touched eight, the bank aims to complete the capital raising before the end of March 2023.

The RBI would have intervened if the issue continued beyond a point, which is not favorable for shareholders or management.

Several shareholders expressed concerns about financial implications and noted that 'uncontrolled expenditure' had resulted in the lowest cost-to-income ratio and falling capital adequacy. The bank's management is not facing the wrath of majority shareholders for the first time. Former MD of the bank, Sunil Gurbaxani, was removed from his office in 2020, following the path of their former CEOs and board members.

Currently, the bank has a capital adequacy ratio of just over 12 per cent, meaning it is under RBI’s close watch and cannot expand its business until it ramps up capital.

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