Dhanlaxmi Bank: An unlikely hero in a stressed market

An unlikely hero of an unsure market: Dhanlaxmi Bank. The stock was up 15 percent in mi-day trade and has consolidated now, up 8 percent.

The main reason is perhaps the management’s decision to raise around Rs 300-400 crore in the market by January 2012. This decision came after the bank’s capital adequacy ratio fell to around 10.7 percent in September. With the equity, the bank’s capital adequacy ratio, or CAR, will go up to around 12 percent. The bank is planning to raise both Tier I and Tier II capital.

[caption id=“attachment_151034” align=“alignleft” width=“380” caption=“The bank is planning to raise both Tier I and Tier II capital. AFP”]  [/caption]

While Tier 1 capital can absorb losses without a bank being required to cease trading, Tier II capital absorbs losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

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Another reason could be a settlement between the trade union and the bank. According to ET NOW, AIBOC has called of its agitation against the bank management and the board will meet on Friday to approve the settlement. Earlier there were several complaints by trade unions and workers that the bank was window dressing its financials and had a dismal state of bad loans. Though the management denied such allegations, the bank’s stock price took a severe beating and never really recovered.

Moreover, on Tuesday the bank signed a memorandum of understanding with LICfacilitating policyholders to receive policy payments through electronic funds transfer.

It is interesting to note that the bank raised money through qualified institutional placement (QIP) in 2010. It received Rs 181 per share at that time as the share price was hovering around Rs 150. Now its share price is around Rs 60, much lower than it was a year ago.

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Its profits for the financial year 2011 were also Rs 26 crore. In first half of the year it has made a profit of Rs 7.7 crore. This gives an annualised profit of around Rs 15 crore.Thus the current round of fund raising can be at a lower level than the previous one.