In a memorandum to the RBI, AIBOC has raised several questions over Dhanlaxmi Bank’s business operations

After whistleblowers raised a red flag raising questions about the operations of Dhanlaxmi Bank, the All-India Bank Officers Confederation (AIBOC) has alerted the Reserve Bank of India (RBI) regarding the bank’s wrongdoing. Specifically, it has alleged that the bank has manipulated accounts and provisioning, has a mismatch in asset-liability resources, maintains poor capital adequacy ratio and has huge dependence on call money borrowing.

It has also accused the bank for ignoring social banking and financial inclusion.
 
AIBOC’s Kerala committee, through a memorandum sent to the RBI, has appealed to the apex bank and the finance ministry, to initiate investigations against the bank management and asked it to merge it with any public sector bank to safeguard the interest of employees and the customers of the bank.

Speaking about the obvious mismatch in the asset-liability, it is stated in the memorandum that, “The Bank’s liquidity position is potentially dangerous with the enormous proportion of Inter Bank deposit in its deposit mix. Out of the Rs13,000 crore  of  deposits (that) the  Bank  has,  around  70% are  purchased funds, i.e., Inter  Bank deposits (Rs1,600 crore), Certificate of Deposits (Rs2,500) crore and other ‘special-rate’ quoted deposits (at) Rs5,000 crore.”

According to the memorandum, the bank is heavily dependent on call money borrowing. “The average call money borrowing in the last one year is Rs300 crore per day. In fact, the Bank is borrowing from the call money market heavily since the last two years and is lending it with a margin in violation of the guidelines of the Reserve Bank of India.”

AIBOC says in the memorandum that the bank’s growth has be stunted with 50% fall in current deposits, from Rs1,500 crore to Rs790 crore, and sharp decline in its profit to Rs3 crore in the first quarter of 2011 from Rs55 crore in 2009. It also says, “Advances grew by 10% (Rs900 crore), but out of this, Rs550 crore are not retail loans, but “buyouts”.

The memorandum has cautioned the RBI about non-performing assets (NPAs) turning into bad debts, which would severely affect the bank. “The Bank’s capital adequacy ratio at present is touching 9%, and this can come down at any moment, in case a big loan turns (into an) NPA. The asset portfolio of the Bank is also equally daunting with more than 20% constituted by ‘buyouts’ and another 40% by corporate advances. The composition and health of these loans are not individually scrutinized and therefore have  grave risk (of) further mounting of NPAs once these loans turn into bad debts for which there is every possibility.”  

It further states that the bank has manipulated accounts and various provisions. “The  available information is that the Bank adopted a lot of unscrupulous methods to show  at least a nominal profit in the last one year. Deferring expenses like salary paid to  executives, telephone, rent, ATM expenses, capitalizing revenue expenses like salary  paid to staff etc are frequently practiced by the Bank.”  

According to the AIBOC’s memorandum to the apex bank, Dhanlaxmi Bank recruited many new officers without uniform salary structure. “There is no policy for fixing remuneration of C to C employees. It depends on the relative bargaining strength of the new recruits. There is no transparency on the “performance linked bonus” or “joining bonus”, or “committed bonus” paid to C to C employees.”  

AIBOC’s Kerala unit says, “The organizational structure has been revised umpteen times in the last 30 months. New “verticals” have come up but not stabilized because  of the frequent  changes. Some functions are duplicated, others neglected.”

The memorandum said that the bank has been avoiding granting loans to the priority sector such as small agricultural loans, educational loans, etc.  

In fact, according to sources close to the development, AIBOC’s Kerala State Committee is holding a dharna in front of the regional office of the RBI in Thiruvananthapuram on this contentious issue.

Incidentally, according to AIBOC, there was detailed inspection by the RBI on Dhanlaxmi Bank. The apex bank, after coming out with “detailed inspection in Dhanlaxmi Bank, has come out with alarming facts about all the above and has asked the Bank to provide more than Rs100 crore towards the unaccounted expenses and  provisions by debiting the net worth of the Bank.”

Dhanlaxmi Bank has refused to comment on the issue. It said that, “Like all banks, we are also regulated by the RBI and the growth is monitored by the regulator periodically. The baseless allegations are being spread by some people who are trying to spoil the image of the bank.”