A minority shareholder group of 11 shareholders, constituting a total shareholding of around 13.67%, has called for an extraordinary general meeting (EGM) flagging concerns about the working of Dhanalaxm Bank. The causes for calling this meeting, as stated by those requisitioning the EGM, are rising expenses, low capital adequacy and financial performance. The EGM will be held on 12 June 2022 at 11:00am through video conferencing.
The shareholders had sent a notice on 28th April which said “The Bank is passing through a financial crisis as is evident from the results for the quarter ended 31/12/2021 and the Cost to Income Ratio has risen to alarming proportions. The Bank is not having any effective control over expenditure especially Legal and Administrative.” It added “The Bank is going to start new branches and recruit fresh personnel even though the CAR of the Bank has been adversely commented on by the RBI. A detailed discussion on the financial position of the Bank, especially the abnormal increase under expenditure, has to be initiated by the Bank.” Dhanlaxmi Bank is a Kerala-based lender with a history of 95 years. It has deposits of more than Rs12,000 crore and advances of more than Rs8,000 crore.
According to the shareholders "The bank has been facing a lot of governance issues since the new MD took over and has a very truncated board. The attempts to fill in vacancies were met with stiff resistance from the two nominees Sri Jagan Mohan G and Sri DK Kashyap of RBI in the board with active support of MD and part-time chairman of the board for reasons best known to themselves." The shareholders have also alleged that the independent directors want to take control of the bank. They said "Any move on the part of shareholders to increase market capitalisation is resisted by these directors who always wanted to have total control in the bank with support from RBI nominees.”
Remarkably, the number of directors on the Bank's board have shrunk to just five from its full strength of nine members. Out of which one director, Gopinathan CK, is also major investor in the Bank with a 10% stake. The relatives of Gopinathan CK are also among the requisitionists (marked with *) in the table below. The other four remaining members includes two RBI nominees DK Kashyap and Jayakumar Yarasi (appointed on 30th May in place of Dr G. Jagan Mohan); independent director G Rajagoplan Nair and the chief executive officer (CEO) himself.
According to SEBI (Securities and Exchange Board of India) regulations, all listed companies are required to have a at least six members on the board. Independent director Dr (Capt.) Suseela Menon R resigned recently on 1st May citing personal reasons.
The Bank may be unable to appoint new directors due a pending court case in Kerala High Court. The case was filed by former directors, KM Madhusoodanan, P Mohanan and Prakash DL, regarding their candidature for directorship to be placed at the annual general meeting (AGM). The Bank is also planning a rights issue of Rs127 crore to boost capital adequacy ratio from 12.98% to 13.5%.
Dhanalaxmi Bank has been going through a crisis for some time now. It had ousted CEO Sunil Gurbaxani in a shareholder battle in September 2020 and JK Shivan who has previously worked at State Bank of India was appointed as the CEO in January 2021. Back then, Gurbaxani had said: “The Bank needs deep surgery and this bandage approach will not work. Secondly, the professional approach used by me is never accepted by these shareholders. Hence the conspiracy.”
Several other chairmen have resigned ahead of their term in past. Sajeev Krishnan was part-time chairman and independent director who resigned on 29 June 2020 citing personal reasons. T Latha ex-MD & CEO of Dhanlaxmi Bank resigned in 2019 before the end of her term. The presence of RBI nominees on the board seems to have not helped, especially when RBI has sweeping powers to supersede the board of any bank in public interest.