The Reserve Bank of India (RBI) is likely to step in if a section of shareholders stymie the planned rights issue of Dhanlaxmi Bank at it’s upcoming extraordinary general meeting (EGM) on June 12.. The bank is embroiled in a shareholder-management tussle since 2020.
An EGM has been called for by certain investor groups of the bank. Led by B Ravindran Pillai, also known as Ravi Pillai, who holds 10 per cent stake in the bank, the EGM has been called to discuss in detail the bank’s financial position. Pillai is a Dubai-based NRI and the Chairman of RP group that has interests across hospitality, healthcare, infrastructure and real estate sectors in Kerala and West Asia.
However, insiders and people closely linked with the matter differ.
“The purpose of this EGM is to thwart the rights issue which is underway. This is why the shareholders are harping on December FY22 quarter’s losses, while the bank’s profits rose from ₹5.3 crore to ₹23.4 crore year-on-year in March FY22 quarter,” said a person associated with the bank. “The rights issue is likely to be priced at ₹10 - 10.5 a share but little progress has been made with respect to regulatory filings for the issue because shareholders aren’t supportive,” he added.
On March 17, the bank’s board approved a proposed ₹127-crore rights issue. The fundraise is critical for Dhanlaxmi Bank’s future solvency.
Regulatory intervention likely
If the rights issue doesn’t go through, the bank’s future may be in jeopardy. At 12.98 per cent capital adequacy as on March 31, 2022, the bank may just stay afloat for 2 – 3 years.
JK Shivan, Dhanlaxmi Bank’s MD & CEO, acknowledges the rights issue’s importance. “The pandemic hit us one year after coming out of prompt corrective action and we lost four months of FY22 to the second wave. But in just few months of coming out of the pandemic, we were able to achieve the results posted in March FY22 quarter,” he added. To sustain the momentum, capital is required.
However, it is learnt that sections of investors led by Pillai and CK Gopinath, , are not in agreement with the board on this matter. “RBI is aware of the management – shareholders tussle and if the capital raise doesn’t materialise, the bank may be in for regulatory action,” said a person aware of the matter.
RBI is likely to supersede the board and appoint an administrator if the logjam doesn’t end. In the coming week, the RBI may hold talks with the key investors of the bank to assess the situation and decide on the way forward.
“A deadline of June 30 has been set for the management and the shareholders to agree on the rights issue”, said the source.
Resistance from within
The shareholders – management tussle which has been ongoing since 2020 aggravated especially after the board turned down the reappointment of Pillai in September 2021. Pillai and Gopinath (including family’s stakes) hold 10 per cent each in the bank and may not be able to participate in the rights issue as it may lead to a violation of the regulatory shareholding threshold, thus explaining their resistance to the fundraising.