CARE downgrades Dhanlaxmi's hybrid Tier-II bonds to default

Downgrade follows the bank's fall in its capital adequacy ratio to 7.51 per cent

In a first for any Indian bank, CARE Ratings on Friday downgraded a bond type of private sector Dhanlaxmi Bank to default, following the lender’s fall in capital adequacy ratio (CAR or capital a bank should set aside as a percentage of risky assets).

The rating on the bond was downgraded to 'D' from 'BB' by CARE Ratings.  

The bond in question is a hybrid Tier-II instrument, with an outstanding amount of Rs 27.5 crore, and a lock-in clause to not pay interest and principal if CAR falls below the minimum requirement.

The bank reported a total CAR of 7.51 per cent as on March 31, which was below the regulatory requirement of 9.625 per cent. The Tier-I CAR stood at 6.12 per cent as on March 31 and regulatory approval for payment of the interest has not been obtained, CARE said.

Any delay in payment of interest or principal, following the invocation of the lock-in clause, “would constitute an event of default in line with CARE’s definition of default and as such, these instruments may exhibit a somewhat sharper migration of the rating compared to conventional subordinated debt instruments,” CARE said.

Dhanlaxmi Bank is headquartered at Thrissur, Kerala. Total assets of the bank stood at Rs 12,426 crore as on March 31. In 2015-16, the bank reported a net loss of Rs 209 crore on a total income of Rs 1,281 crore.

Gross non-performing assets and net NPAs stood at 6.36 and 2.78 per cent, respectively, as on March 31.