All of a sudden, old-generation private sector banks are hitting national headlines. Tamilnad Mercantile Bank (TMB), Lakshmi Vilas Bank (LVB) and now Dhanlaxmi Bank – all these small private sector lenders of very long standing have come into focus for all wrong reasons.
TMB – a bank promoted by members of the Nadar community – occupied headlines a few days ago when authorities slapped multi-national Standard Chartered Bank with a penalty of Rs. 100 crore for violation of the provisions of the FEMA (Foreign Exchange Management Act) in a case relating to unauthorised allocation of shares in the Tuticorin-headquartered TMB. Besides imposing the penalty on Standard Chartered Bank, the adjudicating authority under FEMA also levied a fine of Rs 17 crore on TMB and Rs 35 crore on M.G.M. Maran, the former chairman of the South Indian private sector lender.
And just last week, India’s banking industry was stunned when shareholders threw out the resolutions relating to the appointment of Lakshmi Vilas Bank’s CEO and six directors.
Now comes the news that shareholders of Thrissur-based Dhanlaxmi Bank have ousted its Managing Director and CEO Sunil Gurbaxani at the annual general meeting (AGM) of the lender on Wednesday. In the voting, 90.49% of the votes were polled against Gurbaxani. While voting out the resolution pertaining to his appointment, the shareholders, however, cleared all other resolutions at the meeting.
If what happened at LVB was unprecedented, the removal of an RBI-cleared CEO by Dhanlaxmi Bank’s shareholders will be remembered as equally significant in the annals of the Indian banking industry.
The general-secretary of the All-India Bank Employees’ Association (AIBEA), C.H. Venkatachalam, has said that Gurbaxani must go now that the shareholders have voted against him.
Somewhere along, Venkatachalam said, the bank was led into the wrong direction. If this was allowed to continue, it could eventually lead to mismanagement, he added. He reckoned that the shareholders had done the right thing in removing Gurbaxani.
“They (old private banks) aren’t big. They can’t grow beyond. For, they need capital to grow,” Venkatachalam said, articulating the predicament of the old generation private banks which came into being in a different time period and with a specific purpose.
Implanting the western banking concepts on them was not correct, he felt, adding that one possible option could be to merge them with the nationalised banks.
Major shareholders of the bank are reportedly upset with the way Gurbaxani led Dhanlaxmi Bank, with apparently a distinct bias towards investors from the “North Indian lobby”. Like many of the older generation private banks, Dhanlaxmi has an identity of its own, which is strongly rooted to its Kerala origins.
Shareholders somehow fear that this identity will get lost under the current management dispensation. Hence, they seem to have shown the door to Gurbaxani, who assumed office as CEO in February 2020. A veteran banker, he has 35 years of experience with the State Bank of Bikaner & Jaipur (now State Bank of India), and Axis Bank.
The Reserve Bank of India appears to have been appraised of matters. Only yesterday, on Tuesday, the Reserve Bank of India (RBI) appointed one of its officers on the board of Dhanlaxmi Bank for a period of two years from September 28. And earlier last week, the central bank asked the board of Dhanlaxmi Bank to terminate the services of P. Manikandan, chief general manager – an unprecedented step. The banking regulator was reportedly extremely unhappy with his interference in board matters.
Since June, the bank has seen a series of exits. Sajeev Krishnan, part-time chairman and independent director, was the first to go. Krishnan had joined the Kerala-headquartered bank in February 2018 for a three-year spell. He had around eight months left in his term. Two more resignations followed. The two were: K.N. Murali, independent director, and G. Venkatanarayanan, an additional director. Following their exit, the bank had appointed new board members. These include P.K. Vijayakumar, G. Rajagopalan Nair, G. Subramonia Iyer and Suseela Menon.
As of March 2020, prominent investors in the bank include: B. Ravindra Pillai (10%), Gopinathan C. K. (7.5%) and Kapilkumar Wadhawan (5%). Foreign portfolio investors hold 11.4%. This is according to a bank filing with the BSE.
The AIBEA, had, in fact, sought the RBI to intervene and carry out course correction. “In the beginning of this year, the top management has changed, and, in the recent months we are concerned to observe that perhaps the bank once again is heading in the wrong direction,” it said in a recent letter to the RBI. “Instead of consolidating the gains and further strengthening the bank, we observe that efforts are on to change the business profile, which is bound to land the bank into difficulties,” it added.
Small is beautiful, it is often said. But small is posing problems to these older generation private banks. Scale requires fresh capital. But the shareholders of the original kind don’t have the capacity to bring in fresh funds to push growth in a highly competitive environment. Clearly, the big guys have an advantage here. So how to navigate without losing one’s identity? That is easier said than done for these so-called old generation private banks.