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Dhanlaxmi to cut corporate biz, reduce staff to boost financials

Dhanlaxmi Bank will cut the size of its corporate business unit, downsize manpower and focus on high-yielding businesses, such as gold loans, to boost its financials.

, ET Bureau|
Updated: Apr 09, 2012, 05.54 AM IST
MUMBAI: The Thrissur, Kerala-based Dhanlaxmi Bank, which is facing a strain on liquidity due to its bloated cost structure, will cut the size of its corporate business unit, downsize manpower and focus on high-yielding businesses, such as gold loans, to boost its financials.

PG Jayakumar, the bank's new managing director and chief executive officer, says the idea is to cut operating expenses by 50% for the year ending March 2013 from the previous year's levels.

"In the current scenario, cost reduction is as important as fresh income generation. Manpower deployment shall be base minimum, so that cost can come down," Jayakumar said in a memo to the bank's employees. Jayakumar, who is seen to be close to the employees' unions, was appointed as the MD & CEO in February, when Amitabh Chaturvedi quit following differences with the bank's management.

The Reserve Bank of India, or RBI, has approved Jayakumar's appointment for a year, said a person familiar with the development. "The RBI has also said it would review his appointment at the end of one year, based on the performance of the bank," said the official, who did not wish to be identified.

The bank recently elevated the chief operating officer, Muralidaran Rajamani, as deputy CEO. The bank's board is also expected to give an extension to chairman GN Bajpai, whose term ends in May.

Jayakumar said the bank will go slow on corporate business and will focus on raising funds at lower costs. "Advance against gold will be given thrust in cluster branches. They (the branches) will contribute to retail business and priority-sector lending, mainly through gold loan business," said his memo.

On manpower reduction, all branches, and regional and zonal offices have been instructed to identify excess manpower and come out with a plan to reduce it by the end of April.

Cost reduction will be key to the turnaround of Dhanlaxmi Bank, whose key financials have come under severe stress in the past couple of years.

The bank's current-account, savings-account, or CASA, ratio, which shows the contribution of low-cost deposits, slipped to 18.2% in the financial year ended March, from 22.9% in the previous year. During the year, total deposits declined by 831 crore to 11,700 crore, while advances fell 301 crore to 8,821 crore.

"The credit growth in our bank in the current year has been negative between March 31, 2011, and March 30, 2012," Jayakumar's memo to the employees said.

Against the backdrop of deteriorating financials, the new business plan drafted by Jayakumar emphasises on the need to focus on mobilising low-cost deposits. And when it comes to loans, the focus will be on small and medium enterprises and micro-agri credit.

To boost the fee income of the bank, branches have been directed to focus on sale of third-party products. Non-interest income, as a percentage of total income, was 10.75% for the nine months ended December 2011. Jayakumar wants to boost this to 15% by March 2013.

The bank is also making efforts to strengthen its capital base to achieve a 35% credit growth by the fourth quarter of the current financial year. It plans to raise tier-II capital of 200 crore in the next 50 days and equity capital in the first quarter of 2013.

Dhanlaxmi Bank's capital adequacy ratio stood at 9.88% as of December 2011.

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