Fitch cuts Dhanlaxmi Bank rating

Rating agency Fitch on Tuesday downgraded Dhanlaxmi Bank's subordinated debt (Rs 17 crore) to 'BBB-' from 'BBB' as the old-generation private lender posted a net loss in the third quarter.

The Kerala-based bank could post further losses due to an elevated cost-base and revenue pressures from its rapid expansion of network, Fitch said in statement.

Fitch also put the rating under watch, with negative implications. The action follows a net loss of Rs 36.87 crore for the quarter ended December 2011. It reflects risks to the operating performance and the vulnerability of the capital ratios. Losses could adversely impact the bank's capitalisation and financial flexibility.

The agency will assess results in the fourth quarter ended March 2012, before resolving the RWN. However, in the interim, the ratings could be downgraded if there are signs of deterioration in the bank's funding or capitalisation.

Although, Dhanlaxmi's asset quality has been stable thus far, the gross non-performing asset (NPA) ratio edged up to 0.77 per cent at the end of Q3 from 0.55 per cent at the end of Q2.

The agency, therefore, remains cautious due to the moderating economic growth, a relatively high-interest rate environment and low seasoning of a large part of its loan portfolio.

The board of the bank held a meeting where its chief executive officer and managing director P G Jayakumar presented revised business plans that included cost control. He later addressed the branch staff at Dadar (in Central Mumbai).

Its wholesale banking head, Rajeev Deoras, will put in his papers. He confirmed the decision, but did not elaborate.

The bank stock declined marginally (0.15 per cent to Rs 65.10 on the Bombay Stock Exchange on Tuesday).