Weakness in its business model led to a decline in Dhanl-axmi Bank’s profitability, stated its new chief executive, P G Jayakumar.
The business plan, which had set ambitious growth targets, was designed by Amitabh Chaturvedi, the bank’s previous chief executive.
“Weakness in the business model, compounded by a slowdown in the economy, came to the fore in 2011-12, hitting business growth. High operating expenses pushed the bank into a strained profitability scenario,” Jayakumar wrote in a letter to the bank’s shareholders. Chaturvedi had quit the Thrissur-based private lender in February, following differences with other board members over the functioning and management of the bank. Under him, the bank had hired many employees and opened many branches to support its aggressive growth plans. This led to higher operating expenses. In 2011-12, the bank recorded a loss of Rs 115.6 crore.
After taking charge, Jayakumar tried to cut expenses and improve the lender’s cost-to-income ratio. “Consequent to the change in leadership and revisiting the business model, organisational restructuring to a branch-centric approach shaped up. This model is time-tested in the banking industry, and is in vogue in about 80 per cent of the banks in the country today,” Jaya-kumar wrote.
He assured shareholders the new management had the support of employee trade unions. Earlier, the unions had accused the previous management of window-dressing the bank’s accounts to show higher profitability. “All trade unions in the bank have been lending excellent support in business development and all-around progress of the bank. Thus, the journey to prosperity is gathering momentum every passing day,” he wrote.
After consultations with the Reserve Bank of India, the lender has sketched a turnaround plan for 2012-13. Jayakumar stated the bank was “leaving no stone unturned” to raise fresh capital, accelerate business growth and improve profitability. He added while manpower rationalisation at the bank was underway, the lender was constantly reviewing its pricing policy and focusing on fee-based income to improve earnings.
“Let me take this opportunity to assure you your bank has the inherent strength of character to weather any storm and forge ahead in a competitive landscape,” he stated.
