Mumbai: Old generation private-sector lender Dhanlaxmi Bank Ltd has appointed a new auditor after the controversial exit of its previous auditor even as the market is abuzz with speculation about a likely merger of the Thrissur-based bank with a large new private bank.
Hyderabad-based Sagar and Associates is the new auditor.
The Reserve Bank of India (RBI) approved the appointment of the new auditor after rejecting the names of three audit firms submitted by the lender.
The new management of the bank, led by managing director and chief executive officer P.G. Jayakumar, had submitted a list of three firms—PB Vijayaraghavan and Co., RGN Price and Co. and CNGSN and Associates—but none of them found favour with the central bank.
Walker Chandiok and Co. and audit consultancy Grant Thornton Advisory Pvt. Ltd walked out in early August before the completion of their tenure due to alleged differences with the management of the bank.
“After RBI approved the name of the auditor, the shareholders too have given the nod,” Jayakumar said.
He strongly denied the rumours that Dhanlaxmi Bank is being acquired by another bank. “The rumours of acquisition are totally baseless. This bank is not up for sale. Nobody has approached us with the intention of an acquisition,” Jayakumar said.
According to him, the bank is progressing with its turnaround plan by shedding expensive bulk deposits and low-yielding large corporate loans in an effort to improve the health of its balance sheet.
Analysts said the bank’s financial position is too weak for any potential acquirer to look at it.
“It would be a speculative call to buy this stock on expectation that this bank will get acquired. There are several issues plaguing the bank, notably the union’s protests, the bad financial position and the current business environment. Many top executives have quit in a short span of time,” said Vaibhav Agrawal, research analyst at Angel Broking Ltd.
“Besides these factors, there are many banks operating in the south. This rules out any unique gains for a potential buyer by buying out this bank,” Agrawal added.
A number of top executives of the bank, including chief financial officer (CFO) Bipin Kabra and chief operating officer Muralidharan Rajamani, had quit in recent months.
Following the resignation of the CFO, the head of accounts and finance, Raghu Mohan, is currently holding the charge of the bank’s finances, Jayakumar said.
For the quarter ended September, Dhanlaxmi Bank posted a net loss of Rs.18.62 crore compared with a net profit of Rs.4.35 crore in the corresponding quarter in the year-ago period and a net loss of Rs.11.81 crore in the June quarter. This is the fourth successive quarterly net loss for the bank.
Dhanlaxmi Bank’s auditors had quit following a disagreement with the bank’s management on its explanation of a sudden surge in the interest earning and margin in the April-June quarter when the yield on advances rose to 13.27% from 11.35% and its net interest margin, the spread between interest earned and interest expended, sharply improved to 2.5% from 1.53% in the previous quarter.
The bank’s former chief executive officer, Amitabh Chaturvedi resigned in February, following alleged differences with the board of directors of the bank on a range of issues relating to its business strategies.
Jayakumar reversed some of the business strategies implemented by the former management and brought down the staff strength to cut costs.
“The turnaround plan is progressing in a successful manner,” Jayakumar said. The portion of bulk deposits has come down to 55% of total deposits from about 70% in the beginning of the year. Retail deposits are now 45% of total deposits, up from 35% earlier.
On the lending side, the focus is on increasing the portfolio of retail loans, such as gold loans, which have now swelled to around Rs.1,100 crore. As of 30, September, Dhanlaxmi Bank had total deposits of Rs.10,842.22 crore and advances of Rs.7,441.16 crore.
Investors do not seem to be enthusiastic about the stock. Shares of Dhanlaxmi Bank have fallen 74% from its peak of Rs.212.5 in October 2010 on BSE. During this period, the bourse’s benchmark index Sensex fell 7.73% and the banking index, Bankex, fell 5.71%.
On Thursday, shares of Dhanlaxmi Bank ended 0.36% lower at Rs.55.15 each while the Sensex gained 0.31%.
RBI is closely monitoring the lender. The central bank began inspection of its books in November on concerns about its financial health.