Mumbai: Shareholders of the private sector lender Dhanlaxmi Bank Wednesday voted against the appointment of Sunil Gurbaxani as managing director and chief executive officer.
During the bank’s 93rd annual general meeting, 90.49 per cent of the total valid votes were polled against Gurbaxani’s appointment. The shareholders, however, approved the appointment of five other board members.
Gurbaxani’s ouster comes a week after shareholders at another private sector lender —Lakshmi Vilas Bank — rejected the appointment of seven directors, including MD & CEO S. Sundar.
The Reserve Bank of India had approved the three-year appointment of Gurbaxani as the MD and CEO of the Thrissur-based bank in February.
Sources in the banking industry said there was a ‘cultural mismatch’ due to Gurbaxani’s appointment, which resulted in customer dissatisfaction and disappointment among shareholders, leading to the rejection of the CEO appointment resolution.
Spate of resignations
Gurbaxani’s ouster comes at a time Dhanlaxmi bank has seen a spate of resignations in the last few months, including that of part-time chairman and independent director Sanjeev Krishnan.
Krishan resigned June-end, eight months before his term expired. The bank said he cited personal reasons as his decision to quit. Two other board members also quit at the same time — K.N. Murali and G. Venkatanarayanan.
Following the resignations, the RBI, on 28 September, appointed D.K. Kashyap — general manager of the central bank’s Bengaluru regional office — as the additional director at Dhanlaxmi Bank for a period of two years.
Lessons in Lakshmi Vilas Bank crisis
The revolt at the Lakshmi Vilas Bank (LVB), which was mainly led by institutional investors, was triggered by the recent arrest of two bank officials for misappropriation of fixed deposits receipts of Religare Finvest worth Rs 729 crore. The Delhi Police alleged this was done in collusion with Religare Enterprises promoters Malvinder Singh and Shivinder Singh.
However, even before the arrests, a sense of discontent prevailed, which was noted in a report by the proxy advisory firm Institutional Investor Advisory Services India Limited (IiAS). In a note to clients in early September, IiAS highlighted corporate governance issues — such as board members who have had a long tenure — and opposed resolutions of the annual general meeting.
IiAS had opposed the appointment of K.R. Pradeep, who is classified as a promoter of Lakshmi Vilas Bank, as non-executive and non-independent director, and also the reappointment of B.K. Manjunath as independent director.
“He was appointed on the board in January 2020. In the past he had served on LVB’s board from February 2009 to 2017,” the note said.
“Although K.R. Pradeep was appointed on the board last year, there are several promoters on the board (at least four out of 13). Given their frequent rotation on-and-off, including K.R. Pradeep’s, we believe some accountability for the bank’s deteriorating performance over the last few years rests with its slate of non-independent directors,” it said.
While opposing Manjunath’s reappointment, IiAS highlighted the fact that he has been an independent director on the board of the bank from August 2008 to January 2015.
“After a cooling off period, he was appointed as Independent Director and part time Chairperson of the bank from 7 June 2017 to 5 June 2020. He was appointed as additional director on 10 June 2020,” IiAS said.
The bank’s weakening financials were also highlighted as LVB’s Tier 1 Capital Adequacy Ratio (CRAR) was a negative 0.88 per cent and gross non-performing assets were a quarter of the bank’s advances, as on 31 March 2020.
“Auditors have expressed an uncertainty related to going concern,” IiAS said.
One of the biggest issues that the LVB faces is raising capital from the investors. Sources said the presence of RBI-appointed directors in the bank board for years also weighed in the mind of the investors who were sceptical about the bank’s governance practices due to such a move.
The RBI had rejected various proposals from non-banking finance companies who wanted to take a majority stake in the bank. The latest was Indiabulls Housing Finance which proposed a merger with Lakshmi Vilas Bank, but was rejected by the RBI which didn’t cite any reason.
Recently, Clix Capital had shown interest in acquiring the beleaguered bank and started due diligence, but the latest developments may put the deal in jeopardy.