ALL INDIA BANK OFFICERS CONFEDERATION

(Registered under the Trade Unions Act 1926, Registration No.:3427/Delhi)

C/o Bank of India, Parliament Street Branch
PTI Building, 4, Parliament Street, New Delhi: 110001
Phone: 011-23730096 Tel/Fax 23719431
E-Mail: aiboc.sectt@gmail.com

Letter No. 2014/72-A

Date: 07/11/2014

To,
The Deputy Governor,
Reserve Bank of India,
Mumbai.
Respected sir,
AFFAIRS IN DHANLAXMI BANK
May I, the General Secretary of All India Bank Officers Confederation, humbly place before
you some grave and sensitive issues relating to Dhanlaxmi Bank. AIBOC being a Trade
Union of supervisory cadre in the country with 80% membership of bank officers, we feel
that we are duty bound to apprise the highest Regulatory Body of the Banks, about the
situation in Dhanlaxmi Bank. We share our apprehensions about Dhanlaxmi Banks future,
and our views on its present style of functioning, with the fond hope that there will be a kind
intervention from your good office.
AIBOC is concerned about the Institutions future, as the lives of 1700 officers and around
600 award staff are linked to this 87 year old Bank. So also, the Bank has a sizeable retail
customer base in Kerala as well as in Tamil Nadu. We have first hand knowledge of the bitter
experience of the officers of Dhanlaxmi Bank on account of the mismanagement in the Bank
under the previous regime in 2008-11 (The Bank was headed by Amitabh Chaturvedi). It was
AIBOC National and Kerala State Unit, that alerted the RBI in 2010 when the Bank was in
problems. The then MD and Board of Directors washed their hands off when, during that
period after two and a half years of adventurism; the Bank booked a huge loss. Today, even
after 3 years of the present managements tenure, the Bank has not truly turned around. In
fact, more dust has accumulated under the carpet and a cleansing operation has to start
now; or else more problems will be in store for the Bank.
The present management of Dhanlaxmi Bank has been taking refuge citing the legacy
factors in NPAs and the mismanagement of the former management team for the poor
financial results. Having failed to deliver stable growth, the Banks present management is
scouting for one more excuse- Industrial relations crisis. At the same time, the Banks top
executives are overpowering the Director Board and are resorting to practices that are
violative of the good banking practices.

Recently, a Director of the Bank, a former General Manager of RBI, was removed from the
Board of Dhanlaxmi Bank (when he refused to step down as dictated by the top executives)
using the proxy collected from the investors at the Annual General Meeting. It is worthwhile
to examine how an official resolution for the continuance of the Directorship of the said
person got defeated, and how the Banks own Senior Executive travelled to different parts of
the country and collected proxy from several groups of investors to defeat this resolution.
Collection of proxies by employees is against the service conditions of the Bank. Yet it is
happening with ease now.
It is also worthwhile to note the change in shareholding pattern in the Bank. If we examine
the share holding pattern of Dhanlaxmi Bank till 2002 and after, the gradual change from a
retail ownership to a concentration of ownership in a few hands will be visible. In 2002,
the capital of Dhanalakshmi Bank was Rs.32 crores. The share holdings were dispersed, with
the retail share holders having a major stake in the Bank. In 2002, a Rights Issue was
announced which was not fully subscribed, and RBI allowed Dr.Raja Mohan Rao, the then
major shareholder to subscribe to the unsubscribed portion of the rights issue. Later, Dr.Rao
was asked to reduce his stake from 38% to below 10%, but this again was distributed to
some groups as decided by Dr.Rao. In 2010, a QIP was announced whereby the capital got
hiked to Rs.85 crores Since then the Bank has announced either QIP or PIPE only for
capital augmentation; thereby ensuring that investors who are identifiable with just less than
5% stake acquire the capital.
Year
Mode
Amount Share
Cumulative
Cumulative Capital +
premium
capital
share premium
Rupees in crores
Upto 2002
2002
Rights
2010
QIP
2013
QIP
2013
PIPE
2013
PIPE
2014
QIP
2014
PIPE
2014
PIPE

32
32
21
15
6
2
18
7
44
177

61
144
359
55
29
9
50
22
156
885

32
64
85
100
106
108
126
133
177

93
269
649
719
754
765
833
862
1062

Now Dhanlaxmi Bank is like a partnership firm with 20 or 30 investors, (having stake just
below 5%) each having a private agenda to pursue, and the top executives in turn executing
them.
Though the Bank could increase the capital substantially, the disadvantage is that the top
two executives of the Bank, the present MD and CGM could develop a liaison with the
investors, as it was they, who were negotiating with the big investors for investment in the
Bank through PIPE/QIP. Using this clout, the present MD and CGM determine who shall be
the Director of the Bank. The present Directors, Sri.P.Mohanan, Sri.K. Jayakumar and now
Smt.K R LakshmiDevi, all came through this route. Those Directors who are not toeing their
line can be removed also. The case of removal of Sri.K.Vijayaraghavan (former Director) is a
classic example. At any time the Board can oust the Chairman also by similar lobbying and
may suggest the name of their own person as Chairman. Instead of the Chairman and the

directors determining who should be the MD and CGM, it is happening vice versa- MD and
CGM are selecting the Directors and the Chairman of the Bank. By selecting the directors by
this mode, there is big erosion in the independent director concept in Dhanlaxmi Bank. This
is a dangerous trend because the much needed checks and balances in the Banks
administration will be missing. This is a systemic issue, which has to be addressed and set
right.
The other issues that the Bank is facing now are equally or more serious. There is an
increasing incidence of frauds and scams in the Bank. A forensic audit may be conducted, as
evidences strongly point to the involvement of the top executives in some scams.
To cite an example, the huge fraud amounting to around Rs.240 crores has taken place in
Mumbai Goregoan Branch in overdraft against fake FDRs, which took place with the tacit
support of the Banks management. (The matter is now being investigated by EOW.) We
learn that our affiliate in the Bank, DBOO, blew the whistle when this happened, but the
Banks management refused to act upon it and allowed it to continue.
Sanctioning of high value loans to customers unrelated to directors, but with special
interest to them.
Debiting huge service charges in the accounts of customers and then booking the income on
a pre-date so as to dress up the Balance sheet. (This was done by the earlier regime too)
The service charge of those customers who complain will be reversed. Some customer
accounts who represent upfront, will not be debited the charges at all. We learn that such
discriminatory practices are prevailing in the Bank.
We understand that there is an over-reliance on Institutional deposits and inter-bank
deposits by the Bank at the fag-end of the quarter to boost the Balance sheet size. At the
same time these funds are invested in low yielding instruments thereby affecting the NIM
very much. There is also a rise in the quick mortality cases in some recent loan sanctions,
the causes of which may be examined. We apprehend that a liquidity crisis may come if this
trend is continued.
The Bank is
constitute a
the present
that if he is
ransom.

over-relying on two depositors by granting extra interest. The first 2 depositors

huge percentage (around 17%) of the total deposits of the Bank. To say that
MD should continue for servicing these accounts is only a veiled threat given;
not given extension, the accounts will be closed. This is as good as asking for

We may also add a word about the poor management of Human resources. The officers
segment is large, but there is no proper man power assessment or succession planning.
Isolated promotions at the top level happen, like one of the two GMs getting promoted as
CGM in recognition of his services in capital raising. But down the line, the promotion
exercise is not being conducted since the last one and half years.
The Officers Trade Union DBOO with 98% membership had been at the receiving end of the
wrath of the top executives always, because they express protest against the
mismanagement of the Bank. Criticism or feedback is not at all tolerated by the Banks
management. There is a serious violation of trade union rights of officers. Transfers are
used as a victimization tool, especially against lady officers. Memos, charge sheets etc are a
regular feature.

Please note that whistle blowers are treated very shabbily by the Dhanlaxmi Bank
Management. A lady officer (Chief Manager) who sent a complaint to RBI on certain grave
irregularities has been witch hunted and is under suspension now. So we request you to
keep the identity of the complainant secret, and do not mark a copy of this letter also to the
Dhanlaxmi Bank Management asking for remarks (as the RBI normally does), because our
affiliate in the Bank- Dhanalakshmi Bank Officers Organisation had raised these issues
already and so the management will once again wreak their vengeance on the leaders of
DBOO.
It may be noted that the Dhanlaxmi Bank has been an object of experimentation for years
together. Though small, the Banks fundamentals were strong. But it posted a huge loss in
2010-11 following a massive overhauling attempt by Amitabh Chaturvedi. In the following
year a marginal profit was booked, but again in 2013-14 Bank booked a huge loss of Rs.252
crores. This is suspicion evoking and warrants immediate attention of the Regulator. We
have seen how old generation banks like Nedungadi Bank and Lord Krishna Bank in Kerala
collapsed when early warning signals were ignored. Therefore our feel is that prompt
corrective action should be taken immediately in Dhanlaxmi Banks case. We also have a
humble request. As the Banks position is too fragile for further experimentation, perhaps
the only lasting solution would be a merger with a sound public sector bank.
Thanking you,
Yours sincerely,

(HARVINDER SINGH)
GENERAL SECRETARY
CC:
Shri R. Gandhi,
Deputy Governor,
Reserve Bank of India,
Department of Banking Operations and Development,
Central Office Building,
19th Floor, Shahid Bhagat Singh Road,
Mumbai-400 001.