Dhanlaxmi Bank hopes to return to profit zone post revamp exercise

Dhanlaxmi Bank expects to be back in the black next year by resorting to cost-cutting, rebalancing loan book, and consolidating operations.

As part of the cost-cutting exercise, the old-generation private sector bank has initiated steps to cut excess flab, reduce salaries and give up extra space in major metros and cities to save on lease rentals.

The bank had reported a net loss of Rs 36.87 crore in the October-December 2011 period, against a net profit of Rs 7.26 crore in the corresponding year-ago period.

Former CEO Mr Amitabh Chaturvedi had quit the bank in February in the backdrop of the loss incurred by the bank and exceptionally high operating costs.

On rationalisation of staff, Mr P.G. Jayakumar, MD & CEO-in-charge, Dhanlaxmi Bank, said an evaluation exercise is on to estimate the staff required to run the 280 branches.

Since February, the bank's employee strength has come down from 4,600 to 4,200. Those hired in the last three years on contract basis and at high salaries have had to take a 40 per cent pay cut. About 1,500 employees of the bank are on the Indian Banks' Association prescribed pay structure.

Rebalancing loan portfolio

According to Mr Jayakumar, the bank will not renew low-yielding unsecured corporate advances.

Dhanlaxmi Bank will channelise the funds so released to borrowers in the small and medium enterprises segment. Further, it will step up thrust on gold loans. Both these categories of loans will fetch higher yields.

Of the total loans of Rs 9,550 crore as on December-end 2011, retail loans accounted for 54 per cent of the loan book; corporate loans 29 per cent; SME 15 per cent; and agriculture 2 per cent.

The bank will increase its low-cost current and savings bank deposit base from 20 per cent of the total deposits to 22 per cent in FY13.

To divest stake in broking firm

The 15 per cent stake that the bank picked up in broking firm Destimoney will be divested. This move comes as the Reserve Bank of India has objected to the classification of this investment in the held-to-maturity category. Without this classification, the bank would have to make provisioning in case there is a mark-to-market loss.

Capital plans

Dhanlaxmi Bank plans to raise Rs 200 crore by issuing subordinated debt in the next couple of months. Further, it will raise Rs 200 crore by issuing preference shares to strategic investors by September-end.

Currently, the bank's capital adequacy ratio is low at 9.88 per cent. Of this, Tier-I capital is at 8 per cent.

“Once we mobilise the funds, our capital adequacy ratio will go up to 12 per cent,” said Mr Jayakumar.

Back to basics

The bank has dismantled the vertical structure created by the previous management, whereby the official handling liabilities did not know what was happening on the assets side, said Mr Jayakumar.

Dhanlaxmi Bank has reverted to the traditional branch banking model where the branch manager is responsible for the assets as well as the liabilities side of the balance sheet.

kram@thehindu.co.in , priyan@thehindu.co.in