Dhanalakshmi Bank hits RBI hurdle

The expansion plans of Dhanalakshmi Bank, based in Thrissur, Kerala, have hit a roadblock.

The Reserve Bank of India (RBI) has withheld issue of fresh branch licences to the small-sized private sector bank as it has less than the required net worth and because the regulator wants the largest shareholder, P Raja Mohan Rao, to reduce his stake to 10 per cent.

The 80-year-old bank's net worth as on June 30, 2007 stood at around Rs 130.23 crore as against the RBI's stipulation of a minimum net worth of Rs 300 crore at all times.

Raja Mohan Rao, a businessman from Andhra Pradesh, held 36.69 per cent stake in the bank as on June 30, but has since pared down his shareholding to 18 per cent.

"We have not received fresh branch licences from the RBI. Capital is one of the reasons why the RBI has taken this decision. Once we have sufficient net worth, we are sure the RBI will give us new branch licences. We had applied for 25 to 30 branches in 2007-08. Our intention is very clear," P S Prasad, managing director, Dhanalakshmi Bank, told Business Standard.

The bank currently has a network of 181 branches and 26 extension counters across Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Delhi and West Bengal.

The bank had deposits of Rs 3,194 crore and a loans portfolio of Rs 1,922 crore at the end of June 2007. It reported a 100 per cent increase in net profit to Rs 6.05 crore in the quarter ended June 30, 2007, from a year earlier.

Dhanalakshmi's capital adequacy ratio at the end of June 2007 was 9.87 per cent, a little more than the minimum regulatory capital adequacy requirement of 9 per cent.

Prasad said "We are planning to raise around Rs 180 crore through a rights issue. We should be applying to the Sebi (the Securities and Exchange Board of India) in the next 10 days. Enam (Financials) is our merchant banker.''

Banking sources, however, indicated that the bank could have difficulties raising the target amount through a rights issue as the RBI would not permit the largest shareholder, Raja Mohan Rao, to participate in the issue.

Sources said the central bank had also appointed two observers on the board of Dhanalakshmi Bank.

A banking source said "After every four to five months, the RBI puts pressure on such capital starved banks to find a suitable partner and explore the possibility of a merger. Old generation private sector banks like Catholic Syrian Bank (CSB) and Bank of Rajasthan (BoR) are also currently facing the heat from the RBI''.

The 87-year old CSB, also based in Thrissur, needs to increase its net worth to Rs 300 crore from Rs 230 crore now, while BoR is required to reduce the promoter holding to 10 per cent from the current 44 per cent.

CSB also plans to raise around Rs 122 crore through a rights issue, but has been unable to raise capital as a local court has issued an interim injunction against the bank proceeding with the issue, based on a complaint by V O John of Vazhaparamban of Konikkara that the rights issue violates the provisions of the Companies Act.

In the recent past, other capital starved banks such as United Western Bank and Sangli Bank, both based in Maharashtra, were merged with IDBI Bank and ICICI Bank, respectively.