Will RBI Intervene In Dhanlaxmi Bank – Free PDF Download

Why in news?

• All India Bank Employees Union (AIBEA) has asked the Reserve Bank of India (RBI)
• To intervene in the affairs of Kerala-based Dhanlaxmi Bank before it runs into problems.

It’s past

• The 93-year-old Dhanlaxmi Bank is a small-sized private bank with headquarters at Thrissur in Kerala.
• Between 2008 and 2012, the bank was facing a lot of problems regarding its performance, and was making losses.
• C H Venkatachalam, general secretary, AIBEA, in his letter to the RBI Governor alleged that “In the name of modernising the bank, the then top management brought the bank to serious problems, and virtual mess”.
• Dhanlaxmi Bank made a loss of more thanRs 850 crore during that period.
• With the intervention of the RBI, change in the top management, and strengthening its capital base, etc. and inducting some reputed people on the board of directors,
• The bank has been making a turnaround, and now it has turned profitable.The bank reported highest profit of Rs 65 cr since its inception nine decades ago in FY20.

So what’s the problem now?

• According to Venkatachalam, the top management was changed at the beginning of this year.
• In recent months, we are concerned to observe that, perhaps, the bank once again is heading in the wrong direction.
• Instead of consolidating the gains, and further strengthening the bank, we observe that efforts are on to change the business profile which are bound to land thebank into difficulties, he alleged.
• The letter stated that a lot of branches were earlier opened in the north, and the bank got into problems due to inadequate control, and supervision.
• Hence, these decisions had to be reviewed and the bank has already closed many of those branches.
• “But we learn that attempts are again being made to open more branches in northern states,
• While the bank has inadequate infrastructure to manage the business in those areas.
• Similarly, the cost to income ratio in this bank is already high,”
• AIBEA Secretary General CH Venkatachalam said.
• If the central bank does not effectively intervene in the affairs of this bank now, once again it will run into problems.
• “Slowly, the people and customers of the bank have regained their confidence about the bank and any reversal of the same would be suicidal for the bank,” Venkatachalam said.

Root cause of the problem?

• Since there are no strong promoters for the banks, a clutch of powerful investors are calling the shots.
• On Wednesday, shareholders of Dhanlaxmi Bank voted against the appointment of Sunil Gurbaxani as managing director and CEO,
• Even though the RBI had approved his appointment for a period of three years.

Who are the top shareholders of the bank?

• MA Yusuff Ali — the promoter of Lulu Mall group of Kochi and Dubai — who holds nearly 5% stake, Gopinathan CK with 9.79% andDHFL group’s Kapil Wadhawan (4.99% stake) are the top shareholders of the bank.

So what Bank union is demanding?

• According to bank unions, the RBI’s role in the board of directors of Dhanlaxmi Bank should be reviewed,
• As otherwise the central bank would become answerable if things go bad.

Q) Which of the following can be considered as the core function of the Reserve Bank of India?

1. Banker to the Central and State Governments.
2. The formulation and implementation of monetary policy.
3. Management of foreign exchange reserves.
4. Banker to banks.

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