Mumbai:Amitabh Chaturvedi quit as managing director and chief executive officer (CEO) of private sector lender Dhanlaxmi Bank Ltd on Monday, following alleged differences with the bank’s board on a range of issues relating to business strategies.
P.G. Jayakumar, the bank’s executive director, took over as the new managing director and CEO, according to a release from the bank.
“Chaturvedi had serious differences with the board regarding the strategies of the bank. He had different views on several issues. It was coming,” a Dhanlaxmi Bank official said. He did not want to be named.
Exit route: Amitabh Chaturvedi.
Dhanlaxmi Bank’s stock price fell 2% on Monday to close at Rs 56.3 on BSE, even as the benchmark Sensex gained 0.58%.
Chaturvedi was heading Reliance Capital Ltd, the financial services arm of the Anil Ambani-led Reliance Group, before taking over at Dhanlaxmi Bank in October 2008.
A “growth junkie”, as described by a Dhanlaxmi Bank senior executive, Chaturvedi spent a lot of money on hiring people and expanding the branch network, but income did not grow to that extent. That was the key to differences between him and the directors.
“Chaturvedi saw this as an investment, but it was taking time to pay off,” the executive said. He declined to be named.
In an meeting with Mint on Saturday, Chaturvedi declined to speak on these issues officially, citing the so-called silent period ahead of quarterly earnings next week.
G.N. Bajpai, former chairman of the Securities and Exchange Board of India, is chairman of the bank. The board consists of chartered accountant Shailesh Haribhakti and former State Bank of India managing director S. Santhanakrishnan, among others. Another director had quit the board in December.
For the quarter ended 30 September, Dhanlaxmi had posted a Rs 4.35 crore net profit, up from Rs 1.62 crore in the corresponding period last year, but analysts expect the bank to post a net loss in the December quarter.
The Reserve Bank of India (RBI) started an inspection of its books in November on concerns about its financial health. Even though it has been making profits, the bank has allegedly not strictly followed some accounting norms.
For instance, it has already booked income from certain businesses that should have been done over a period of time.
Employee strength has risen at least threefold in the past three years and the wage bill has risen about four times. The branch network rose by 66 to 275 during the same period.
The loan book has surged in the past two years—from Rs 4,391 crore in December 2009 to Rs 10,130 crore in September 2011.
Despite the growth in advances, overall income could not keep pace with the rise in costs and that put strain on the balance sheet. While Chaturvedi defended his strategy and rising expenditure as investment for growth, the board was not convinced about this.
RBI, which recently okayed Chaturvedi’s second term as CEO and allowed the bank to open 100 branches after keeping it under a monthly monitoring mechanism till early 2008, found discrepancies in certain accounting practices.
A section of the board was also unhappy about human resource management at the bank, according to another employee.
Between 2008 and 2012, Dhanlaxmi hired around 3,000 employees, taking its headcount to more than 4,000.
The wage bill rose to around Rs 250 crore in March 2011 from less than Rs 62 crore in March 2009.
During Chaturvedi’s tenure, the bank saw most of its efficiency parameters declining. Return on assets fell to 0.23% from 1.21% between March 2009 and September 2011, while the capital adequacy ratio fell to 10.81% from 14.44% between March 2009 and March 2011.
Late last year, RBI issued a “monitorable action plan” to the bank, asking it to focus on direct advances instead of buying loan portfolios and improve its earnings and cost-income ratios to 70% by March 2012.
It was also asked to maintain a higher capital adequacy ratio than the mandatory 9%.
In September last year, the employee unions had levelled serious allegations against the management, accusing it of “window dressing” accounts to show inflated profits.
The bank suffered a setback when it had to scrap a Rs 290 crore capital-raising plan as one of the proposed investors, US-based Customers Bancorp Inc. backed off from the deal after failing to secure the local regulator’s approval.
Through the deal, Dhanlaxmi Bank had been planning to sell a 19.6% stake to a group of institutional investors.
Besides Customers Bancorp, other investors in the proposed transaction were private equity firms—WCP Mauritius Holdings, MKCP Mauritius Master Holdings II Ltd, Multiples Private Equity FII I and Multiples Private Equity Fund.
The capital raising, originally planned by way of a preferential share issue, was part of Dhanlaxmi’s long-term plan to raise funds to facilitate business expansion.
Incorporated in 1927 in Thrissur by a group of local businessmen, Dhanlaxmi Bank was perceived as a lender dominated by the local Hindu community.
As of end-December, its shareholders include P. Raja Mohan Rao with 7.29% stake, India Max Investment Fund Ltd (3.56%), Lotus Global Investment Ltd (3.49%) and Dewan Housing Finance Corp. Ltd (2.35%).