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The board of Thrissur-based Dhanlaxmi Bank Ltd may be moving toward a settlement with its large shareholders once it finalises whether to induct two shareholder-directors on the board.

These shareholders, representing 13.67% stake, have chosen B. Ravindran Pillai, a West Asia-based billionaire and head of RP Group who owns 9.99% stake in the bank, and K.N. Madhusoodan, who holds 1% or 2.5 million shares, to be their representatives on the private sector lender’s board, according to two officials aware of the matter.

Last year, the board had decided not to approve the appointment of five shareholder-directors, including Pillai, on the board. This prompted a few former directors, including Madhusoodan to approach Kerala High Court seeking direction to the bank to place their candidature before the annual general meeting (AGM) for a vote.

After several hearings, the high court on 9 March said the shareholders’ petition was maintainable and stopped the bank from conducting any further AGMs appointing directors until the matter was resolved.

Pillai, the majority stakeholder in Dhanlaxmi Bank, was on the board until May 2020 and had to exit after turning 70. However, on 26 April 2021, the Reserve Bank of India (RBI) increased the age limit for non-executive directors, including the chairperson, to 75.

With the board close to reaching an agreement on inducting shareholder directors, it is likely that the case will be withdrawn from the court and the bank will be able to go ahead and raise funds through a rights issue. “The board is comfortable with appointing two shareholder directors. It will then look at appointing some professional directors, including a woman director. If there is board compliance, the bank can come out with a rights issue," said one of the officials aware of the matter. “The shareholders are also willing to withdraw the case if the bank agrees to the proposal for inducting their directors," the official added.

The bank is planning a rights issue of 130 crore to boost its capital adequacy ratio from 12.98% to 13.5%.

At present, the board has only five directors including Shivan and two RBI nominees. The others are C.K. Gopinathan, who is a major investor with a 10% stake, and an independent director, G. Rajagoplan Nair.

The Securities and Exchange Board of India (Sebi) requires listed companies to have at least six directors on the board.

In the past several directors on the board have resigned before their term ended. In December last year G. Subramonia Iyer resigned as chairman and independent director citing personal reasons. In May this year Suseela Menon resigned as an independent director citing personal reasons. The bank’s former CEO Sunil Gurbaxani was ousted in a shareholder battle following which J.K. Shivan, who previously worked at State Bank of India, was appointed as MD and CEO in January 2021.

In April, 11 minority shareholders owning 13.67% called for an extraordinary general meeting, saying the bank was going through a financial crisis and that the cost to income ratio had fallen to an alarming level. “The bank does not have any effective control over expenditure especially legal and administrative. The bank is going to start new branches and recruit fresh personnel though the CAR of the bank has been adversely commented on by the RBI," said the EGM notice. Dhanlaxmi Bank reported a four-fold jump in net profit at 23.42 crore in the quarter ended March 2022 as well as healthy interest income.

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