After a prolonged leadership crisis, old-generation private lender Dhanlaxmi Bank Ltd. is attempting a fresh start under new chief executive officer Shivan JK, who took over on Jan. 28. His appointment, unlike that of his predecessor, was backed by 99.8% of the bank’s shareholders and later confirmed by the Reserve Bank of India.
“There was an insistence that the new CEO should be first voted in by the shareholders and only then the appointment would be confirmed by RBI,” Shivan, a former State Bank of India official, told BloombergQuint in an interview on Feb. 10. “That puts to rest the concerns regarding how shareholders might be thinking.”
Dhanlaxmi Bank Ltd. is attempting a fresh start
The shareholder vote was important after what happened in September 2020. Sunil Gurbaxani, the bank’s previous chief executive, whose appointment had been cleared by the banking regulator, failed to garner adequate shareholder votes, leading to his ouster.
At the time of his exit, Gurbaxani had already spent seven months leading the bank as the RBI had approved his appointment in February 2020. After shareholders voted him out, Gurbaxani had told BloombergQuint that a handful of large shareholders had conspired against him.
Among the large shareholders of Dhanlaxmi Bank are businessmen B Ravindran Pillai and Yusuffali Musaliam, who own 10% and 5% stake respectively, according to exchange data.
According to an official at Dhanlaxmi Bank who spoke on conditions of anonymity, Gurbaxani’s exit was the result of strategic measures he introduced, which went against the identity of the bank. According to this official, the board members had warned Gurbaxani against his aggressive expansion strategy in India’s northern states and proposals to hire employees from large private banks.
This was not the first instance of an abrupt leadership change at the bank. T Latha, chief executive of the bank before Gurbaxani, quit in February 2019, months ahead of the end of her tenure, citing personal reasons. Back in 2012, Amitabh Chaturvedi had exited from the CEO’s office, after his aggressive growth strategy irked shareholders.“What has happened in the past is now over. We now start a fresh day and all our employees and executives are fully geared to grow,” Shivan said.
Set up 1927 in Kerala, Dhanlaxmi Bank has historically provided banking services to the local population of the state and served small businesses. Even now, most of the bank’s presence is in Kerala with some branches in Tamil Nadu, Andhra Pradesh, Maharashtra and Gujarat.
According to Shivan, now that the Thrissur-headquartered bank is out of the RBI’s prompt corrective action framework, it will aim to grow out of its problems. The bank will look to expand its corporate loan book by targeting high rated non-bank lenders and housing financiers. It will also reduce its dependence on participating in consortium loans as the bank tends to have very little stake in such arrangements and no say in recovery.
“There is an opportunity to provide priority funding to companies under NCLT (National Company Law Tribunal) to grow our corporate book. But for this, we will need to put in place a clear board approved strategy, which we will do,” Shivan told BloombergQuint.
The bank will also put in place a strategy to tie up with fintech firms in the gold loan and small business lending space to grow its loan book, he said. In the near term, the bank will grow its secured retail loan portfolio, by offering home loans to its customers who have availed gold loans in the past.
As of Dec. 31, the bank’s total advances stood at Rs 6,837 crore—a 0.59% drop over a year ago. As of Sept. 30, outstanding advances stood at Rs 7,060 crore. Corporate loans and gold loans continue to be the largest components of Dhanlaxmi Bank’s loan book.
“Almost all our loan segments have come down, except the gold loan portfolio which continues to grow,” Shivan said.
Total deposits for Dhanlaxmi Bank stood at Rs 11,456 crore as of Dec. 31 compared with Rs 11,436 crore as on Sept. 30. A year ago, total deposits stood at Rs 10,813 crore.
According to Shivan, at 32.3%, the bank’s current account savings account deposit base has continued to remain strong, mainly because of current accounts maintained by temple boards for collection of donations. The bank will also look at building collection accounts with other religious bodies in Kerala to grow its deposit base further, he said.
“CASA comes from the middle age and older population,” Shivan said, speaking about retail depositors. “We have these types of customers who have continued to be sticky. Our faith is that the retail portion will continue to be strong.”
Asset Quality Concerns
As of Dec. 31, Dhanlaxmi Bank’s gross non-performing asset ratio stood at 5.78%, lower than 6.36% in the July-September quarter. The improvement though was largely because of the Supreme Court’s interim order barring banks from classifying accounts as NPA after Aug. 31.
If this norm was not in place, the bank’s gross NPA ratio at the end of the third quarter would have been at 9%, compared with 8% sequentially, Shivan said.
During the quarter ended December, Dhanlaxmi Bank made provisions of Rs 37.08 crore against accounts which are covered under the Supreme Court’s order as a prudential measure. As of Dec. 31, the total provision coverage ratio for the bank is at over 92%. Going ahead, the lender will try and recover as much as it can from fully provisioned accounts to boost its profitability.
“At SBI we worked with the principle that at least 5% of fully provided accounts must be recovered,” Shivan said. “Even if we recover 3-4% at Dhanlaxmi Bank, that would be very positive for the bank.”
Speaking about Dhanlaxmi Bank’s capital position, Shivan said that he would prefer using the existing capital base and high liquidity in the bank to build a more profitable venture, rather than raise more money and have idle capital lying around.
“The existing shareholders have invested money at a much higher price and they have not been rewarded. That’s for everyone to see,” he said. “We have to ensure that they are rewarded, so we will start with that.”
As of Dec. 31, the bank’s capital adequacy ratio stood at 14.16%, as compared with 13.55% a year ago. The tier-1 capital ratio stood at 10.99%, against 10.36% last year.
Any new CEO will obviously carry an optimistic outlook for the bank he is heading, Gurbaxani, the former CEO, told BloombergQuint. “I only wish for it to flourish, I’ll not be surprised if the story repeats itself and the shareholders do not give the CEO the free hand he deserves.”