Dhanlaxmi Bank shareholders may demand management change if logjam continues

NEW DELHI:  The minority shareholders may demand a change in management of Dhanlaxmi Bank if the logjam continues. Proxy advisory firms and analysts believe that the Reserve Bank of India should be swift in whatever action it takes to safeguard the interest of depositors if the bank cannot resolve the issue.

A group of minority shareholders, who together hold nearly a 13.5% stake in the bank, has called for an extraordinary general meeting (EGM) on June  12 after they raised concerns over the bank’s expansion plans despite the poor capital adequacy ratio. In a letter calling for the EGM on March 28, 2022, the minority shareholders have said that the bank is passing through a financial crisis as is evident from the results for the quarter ended December 2021 and the cost-to-income ratio has risen to alarming proportions.

The minority shareholders have also raised concerns over the bank not having any effective control over expenditure, especially legal and administrative, and therefore, they asked for a detailed discussion on the financial position of the bank through the EGM.

Shriram Subramanian, founder and MD of proxy advisory firm Ingovern said that the shareholder primacy over management will be tested in the vote (at the EGM). He says the shareholders could ask for change in the management, and that RBI must act swiftly to protect the interest of shareholders.

Another analyst who requested not to be quoted said that RBI has time and again failed in its duty to regulate the banks.  “If minority shareholders with limited access to documents and information can detect issues with the bank’s finances, how can the RBI fail to raise red flags. RBI, which has two additional directors on the board of the bank, may appoint another one soon.”