Dhanlaxmi Bank Ltd’s problems appear more deep-rooted than what its management seemed to suggest when it announced the June quarter earnings.
The bank booked a loss for the fourth straight quarter. In the three months ended 30 September, the bank’s loss stood at Rs.18.62 crore compared with a Rs.6 crore profit a year ago.
The problem is that some levers of the bank’s turnaround strategy, such as its retail deposit-led convalescence, don’t seem to be working. A sluggish economy has taken its toll and Dhanlaxmi’s balance sheet is a casualty. The bank’s advances have shrunk 13.8% since the end of March while deposits have fallen 8.1%.
The fall is much starker when compared with the year-ago numbers.
As a result, net interest income fell 14.8%, after showing an increase in the June quarter. With non-interest income also falling sharply, the bank’s operating profit was salvaged because operating expenses were cut by 38%. The fact that Dhanlaxmi made an operating profit of Rs.10.6 crore after three straight quarters of operating losses is, perhaps, the only positive thing in its September earnings.
But this was overshadowed by a sudden surge in bad loans. Dhanlaxmi added Rs.162.3 crore—a 147% increase —to its gross non-performing assets (NPAs) in the three months ended September. Even in the June quarter it had added only about Rs.7 crore to its gross NPAs and had commented about how favourable its NPA situation was compared with the industry. This spurt in NPAs raises a lot of questions and, if indeed the new management is cleaning up the books, it’s puzzling why they took so long to do it after taking over in February.
The immediate impact of this addition to bad loans was, of course, a massive increase in provisions, which widened losses. With the economy still lurching and even big banks finding it difficult to lend more, it’s hard to see how Dhanlaxmi will find its way to profitability soon.