Market Strategy

52-Week Flop: DHANLAXMI BANK

M.V.S. Santosh Kumar | Updated on June 09, 2012 Published on June 09, 2012

The stock of Dhanlaxmi Bank lost more than half its value in last year, as the bank incurred losses for the first time since the 2004-05 fiscal. Adding to the woes of the stock were underperformance of the banking sector in general, shelving of plans to raise equity by the management, accusation of the bank's employee union of accounting irregularities and change in senior management.

Much of the underperformance was after June last year as the company couldn't raise equity capital for funding its growth plans. At 9.5 per cent (as of March), Dhanlaxmi Bank has one of the lowest capital adequacy ratios in the banking sector. The inability to raise capital, followed by the company's financials slipping into red, led to a depletion of core equity for the company.

Operating expenses, thanks to a push for aggressive growth, rose significantly. The operating expenses were more than 1.25 times the net revenues of the bank. Net interest margins declined as the bank shifted to low-yielding corporate loans. Rise in wholesale deposits and declining other income flows didn't help the matters either. Net interest income declined by seven per cent for the fiscal year ended March 2012.

With a change of guard at the top, the bank is currently realigning its focus towards retail loans and cutting wasteful operating expenses.

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