Dhanlaxmi Bank's Rs 127-cr rights issue hits fresh roadblock at boardroom

Lender was aiming to raise Rs 127 crore for growth plans

The woes of Thrissur-based Dhanlaxmi Bank, which has been facing ire from shareholders, continue as its planned rights issue is being hit by the lack of required quorum of members on the board. The bank is yet to fill the posts of women and independent directors, which is mandatory as per the regulatory requirement, owing to an ongoing legal dispute with the shareholders.  

The bank was 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 to over 15 per cent in 2022-23 to push its growth plans like coming up with new branches and products. The company is unable to appoint new directors owing to a legal tussle at Kerala High Court (HC), between the management and a group of shareholders. The shareholders had approached the HC in an attempt to prevent the management from appointing new board members.

Following this, a compromise formula was mooted giving seats to the disgruntled shareholders, sources indicate that though major shareholders agreed to withdraw the case, one is yet to agree to that, leading to a situation which will delay its rights issue plans. A bank source indicated that the remaining shareholder is expected to withdraw the case within ten days 

According to the media reports, the management had agreed to appoint Ravindran Pillai and KN Madhusudan as board members. Pillai is the head of R P Group and holds 9.99 per cent stake in the bank, while Madhusudan holds around 1 per cent. 

The shareholders had approached the HC after the board rejected the appointment of five shareholder-directors on the board, including Pillai. On March 9, the HC stopped the bank from holding its annual general meeting appointing directors, until the matter was resolved.

Pillai was on the board of the bank till May 2020, until he turned 70. The claim from him for becoming a board member once again came after the Reserve Bank of India (RBI) raised the age-limit of non-executive directors, to 75 years, in 2021.

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.

The Kerala-based private sector lender had posted a net loss of Rs 26.4 crore during the first quarter of the current financial year (Q1FY23) compared to a net profit of Rs 6.8 crore during Q1FY22. The loss was mainly due to higher expenses and increased provisioning. The bank’s total income for Q1FY23 was seen down at Rs 237 crore as against Rs 246 crore during QIFY22. The bank’s asset quality improved with its gross non-performing assets (GNPAs) reducing to 6.35 per cent of the gross advances during the quarter under review, as compared to 9.27 per cent last year. Similarly, its net NPAs also dipped to 2.69 per cent during the April to June quarter this year, as against 4.58 per cent last fiscal.

The bank was hit by several top executive exits in the recent past including CEOs, chairman and board members. The list of exits includes Suseela Menon (an independent director), Sunil Gurbaxani (ousted as the CEO), G Subramonia Iyer (part-time chairman), Sajeev Krishnan (independent director) and T Latha (MD and CEO) among others.  

Miffed by the bank’s rising expenses, low capital adequacy, and overall financial performance, a group of 11 shareholders had called an extra-ordinary general meeting in the month of June.