Mumbai: Kerala-based private sector-lender, Dhanlaxmi Bank Ltd has called off its plan to raise 290 crore by selling 19.6% stake to a group of institutional investors after one of them US-based Customers Bancorp Inc -backed off from the deal after failing to secure local regulatory approval.

The capital raising, originally planned by way of a preferential share issue, was part of Dhanlaxmi’s long-term plan to raise funds to propel its business expansion.

“They (Customers Bancorp) could not get the Fed approval. Initially, they said their board has approved (the proposal). They got a verbal approval from the Fed. We have been chasing them asking for US Fed’s perrmission in writing. They were KYC issues as well," Amitabh Chaturverdi, managing director and CEO of Dhanlaxmi Bank Ltd, said.

Dhanlaxmi CFO Bipin Kabra told Reuters that the bank is not talking to other investors and will wait for market conditions to improve over the next six to nine months before reviving a share sale.

Regulatory approvals already in hand means the lender can move quickly if conditions improve, he said. “We were never desperate for the funds," Kabra said.

Mint could not immediately reach Customers Bancoprp due to the time difference.

Besides Customers Bancorp, other investors in the proposed transaction included three private equity players--WCP Mauritius Holdings, MKCP Mauritius Master Holdings II Limited, Multiples Private Equity FII I and Multiples Private Equity Fund.

Dhanlaxmi Bank stock lost 5% on Friday to close at 113.05.

Many small and mid-sized Indian lenders including Bank of India , Indian Bank and South Indian Bank have plans to raise funds through share sales. In March, Canara Bank raised $443 million by selling shares to institutional investors.

At the same time, several Indian lenders have put plans for domestic debt raising on the back burner, deterred by rising interest rates.

In May, Dhanlaxmi had said it planned to raise up to 290 crore to support its expansion and strengthen its capital adequacy ratio.

Investors including MKCP Mauritius Master Holdings II Ltd, Multiples Private Equity FII, Multiples Private Equity Fund and WCP Mauritius Holdings were planning to buy a combined 19.6% stake in the lender.

Dhanlaxmi Bank, which has about 145 branches in the southern Indian state, is eyeing forays into new segments such as gold finance to boost profitability.

Kabra had said in June the bank was looking to raise another 700 crore in 6-9 months, in addition the 290 crore issue.

With inputs from Reuters