The 93-year-old Dhanlaxmi Bank (originally Dhanalakshmi Bank) is a small-sized private bank with headquarters at Thrissur in Kerala. Between 2008 and 2012, the bank was facing a lot of problems regarding its performance, and was making losses.
C H Venkatachalam, general secretary, AIBEA, in his letter to the RBI Governor alleged that “in the name of modernising the bank, the then top management brought the bank to serious problems, and virtual mess”.
Dhanlaxmi Bank made a loss of more than Rs 850 crore during that period. With the intervention of the RBI, change in the top management, and strengthening its capital base, etc. and inducting some reputed people on the board of directors, the bank has been making a turnaround, and now it has turned profitable.
The bank reported highest profit of Rs 65 cr since its inception nine decades ago in FY20.
According to Venkatachalam, the top management was changed at the beginning of this year, and in recent months, we are concerned to observe that, perhaps, the bank once again is heading in the wrong direction.
Instead of consolidating the gains, and further strengthening the bank, we observe that efforts are on to change the business profile which are bound to land the bank into difficulties, he alleged.
The letter stated that a lot of branches were earlier opened in the north, and the bank got into problems due to inadequate control, and supervision. Hence, these decisions had to be reviewed and the bank has already closed many of those branches.
“....but we learn that attempts are again being made to open more branches in the northern states, while the bank has inadequate infrastructure to manage the business in those areas. Similarly, the cost to income ratio in this bank is already high, and it goes without saying that there is imperative need and necessity to improve the ratio substantially. We are sure that the RBI would also be of the same view in this regard,” said Venkatachalam.
“But we are concerned to learn that efforts are afoot to appoint a large number of sales executives and senior executives on contractual and cost to company basis at much higher remuneration. This will land the bank in a catastrophe, and financial burden which, we apprehend, the bank cannot bear and afford at this juncture, he added.
AIBEA said that if the RBI does not effectively intervene in the affairs of this Dhanlaxmi Bank now, it will once again run into problems. Slowly, the people have regained their confidence in the bank, and any reversal of the same would be suicidal for the financial institution.
“We strongly believe that the RBI’s role in the board of directors of the bank should be reviewed as otherwise the RBI would become answerable if things go bad,” said Venkatachalam while asking for the governor's personal and urgent intervention in the affairs of the bank to ensure that the bank once again does not face any bad weather.