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Dhanlaxmi Bank, the oldest private sector bank in Kerala, which has faced some crises in the recent past, may face fresh troubles following the decision of Federal Bank and Kerala State Financial Enterprises (KSFE) to curb financial deals with it.
Federal Bank, in a circular to all its branches and credit hubs, has asked them to stop discounting bills drawn under Letter of Credit by Dhanlaxmi Bank till further instructions. The circular dated April 18 said that the decision was taken based on a review of the counter-party exposures. KSFE, too, has withdrawn its financial dealings with Dhanlaxmi Bank and a decision to this effect was taken at the recently concluded board meeting in which the management is reported to have forwarded an internal circular to all its branches.
Sources in the KSFE told BusinessLine that various branches of the financial institution together had close to ₹300 crore in deposits with Dhanlaxmi Bank.
When contacted, a senior official in Dhanlaxmi Bank said: “We are unaware of any such development nor have (we received) any official communication in this regard till date. Moreover, such decisions will not anyway affect the day-to-day functioning or credit sanctions of the bank.”
The bank, according to the official, is on the recovery path with the infusion of fresh capital and will turn around next year.
However, experts in the banking sector pointed out that these circulars indicate weakening credibility of the bank in the industry.
Major customers of Dhanlaxmi Bank are cash-rich temples in Kerala, including the Sabarimala hill shrine. Despite this, the bank has posted losses for the last three consecutive financial years. Attributing the crisis to mismanagement, the industry sources said the issues can be rectified by adopting a professional approach and cordial employer-employee relationship, which has been at a low ebb.
The experts also warned that the Reserve Bank of India’s move to implement a revised set of Prompt Corrective Action (PCA) would have a direct bearing on the bank.
The RBI, in its new PCA guidelines, said banks with strained books and asset portfolios may be merged with a strong bank with sound fundamentals or wound up.
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