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Firstly, I think there is definitely something wrong with the bank.
If these allegations are proven to be baseless, the persons who have made these accusations will end up in jail.
Employees wouldn't have dared to make such serious allegations if there wasn't something wrong with the bank.
Only a thorough investigation by the RBI can reveal the real extent of problems with the bank.
I am sure RBI will soon announce some sort of audit/investigation of the bank's accounts.
Only after RBI's investigations are completed, investors will know the real position of the bank.
RBI will never allow any "Scheduled Bank" to fail.
A banking failure affects the whole banking system and RBI will make sure that the bank keeps functioning.
In case the management has manipulated the accounts, RBI will make sure that the bank gets taken over by some other bank.
For an equity investor, the worst case could be a repeat of what happened with Global Trust Bank. Equity investors of GTB lost everything. The company went bankrupt and the business was taken over by Oriental Bank of Commerce.
The better outcome could be a repeat of what happened with Bank of Rajasthan. Bank of Rajasthan was in a much better position compared to GTB. Thus ICICI Bank agreed to give some value to the equity of Bank of Rajasthan.
For an equity investor, the worst case could be a repeat of what happened with Global Trust Bank. Equity investors of GTB lost everything. The company went bankrupt and the business was taken over by Oriental Bank of Commerce.
Did GTB shareholder got shares of Oriental Bank? Or GTB was never listed?
Or if listed all powers were dissolved all together.
Yes I did had BOR shares. But that was a total different story. Bank was up for sale than some news about mismanagement stuff came. I had bought 20 shares at 80 rupees. Was planning to invest up to 15000. But before that news broke about a takeover above 180 price and than share went running up.
Got 6 shares of icici bank at 213 conversion rate (6 shares of icici with 213 price value) and some cash too 200-300 rupees.
Global Trust Bank was a listed bank before the merger.
Post-merger, the shareholders got nothing. The stock was delisted.
All money invested in shares of GTB was lost.
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Amid trading in GTB counters, OBC sent a communique to the finance ministry and the Bombay Stock Exchange, announcing that all realisable assets of GTB will be set aside in a separate 'Asset Account,' which would be used to meet all the outstanding liabilities of the Secunderabad-based bank.
The article also states that RBI conducted an inspection of the bank.
If that is true, then RBI should have made its findings public. Shareholders and depositors of the bank have the right to know what is the real status of the bank.
RBI has asked Dhanlaxmi Bank to increase its capital adequacy ratio to 12%.
I find that strange. If the bank is functioning properly, why should it be asked to maintain higher-than-normal capital? Does that mean the RBI is not very confident about the asset quality of the bank?
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Interestingly, the RBI, in its action plan, has also asked the Dhanlaxmi Bank to improve its capital adequacy ratio to 12% by March 2012. It is stricter for Dhanlaxmi Bank than other banks where the capital adequacy ratio is only 9%.
The article also states that RBI is concerned because the bank is capitalizing salaries and bonuses.
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Sources from the banking industry told Moneylife that RBI was concerned about a few issues with Dhanlaxmi Bank. It includes the decision by the bank to capitalise salaries and offer bonuses when it was not in a position to pay the same.
Even a class 12 commerce student knows that salaries should not be capitalized. (There are some exceptions like when salaries can be directly attributed to construction/development of specific assets).
If the bank is using such ridiculous accounting policies, how can the RBI be just "concerned" and not act against the management of the bank?
RBI has changed a lot under present management. They are covering up mis-management of public funds by Government and other institutions. Best example is the persistent rise in interest rates for the last one year by announcing that they are trying to bring down inflation ! which is going out of control by the Govt financial policies.
RBI has changed a lot under present management. They are covering up mis-management of public funds by Government and other institutions. Best example is the persistent rise in interest rates for the last one year by announcing that they are trying to bring down inflation ! which is going out of control by the Govt financial policies.
RBI hasn't changed a bit. It has a poor record as far as detecting mismanagement and taking timely action in such cases is concerned.
Be it the 1992 stock market scam or GTB fiasco, RBI's response has always been too little, too late.
I don't think it is fair to blame RBI for being so hawkish. RBI has no control over India's fiscal policy. RBI takes orders from the government and not the other way round. RBI can't tell the government how to or how not to spend money. RBI can only temper with interest rates to bring inflation down.
RBI hasn't changed a bit. It has a poor record as far as detecting mismanagement and taking timely action in such cases is concerned.
Be it the 1992 stock market scam or GTB fiasco, RBI's response has always been too little, too late.
I don't think it is fair to blame RBI for being so hawkish. RBI has no control over India's fiscal policy. RBI takes orders from the government and not the other way round. RBI can't tell the government how to or how not to spend money. RBI can only temper with interest rates to bring inflation down.
I agree to this.
What can RBI do when all manipulations are done by big corporates or ministers used the bank fund for their own sugar factory or other industry loan which finally lands into NPA.
If RBI comes strict soon or later the governor will be kick out after all he is the servant of those ministers.
Though I feel banking to give good return in future.But whats happening around with this dhanlaxmi fiasco, sbi npa rise or moody downgrade.I seriously feel some bigger mess or past fiasco of IDBI looks around. Have a feeling like some small government banks (i am not sure which one but of) vijaya, dena level might get bust.
But even SBI outlook doesn't look good. But i am sure government won't allow its banking face to international world going bust.
Dhanlaxmi Bank has recovered from the lows and presently trades 2 percent higher at Rs 57.20 on reports of the bank being acquired by either South India Bank or Federal Bank. The report however, has been denied by both the banks.
How good are the chances of any peer taking the bank?
Merging banks in India is not easy, especially because of the regulatory hurdles.
Most of the big mergers that have taken place in Indian banking sector have been "distress mergers", where one of the merging banks accepted to merge with a bigger bank because of financial distress.
Till now, there is no real "distress" visible in the financial statements of the bank.
No doubt, the balance sheet looks stretched, but the bank has been reporting profits till now.
Thus, I don't see much chance of the bank (Dhanlaxmi) agreeing to merge itself with any other bank at this stage.
In case the financial condition of the bank deteriorates in the future and it agrees to merge itself with another bank, there is no guarantee that the shareholders of Dhanlaxmi Bank will benefit from the merger.
Whether the merger will be beneficial or not,will depend entirely on the merger ratio.
Do not invest in any company just because it is going to be merged with a bigger company.
There have been many instances in the past, where shareholders of the smaller company (in a merger) have been given an unfavorable merger ratio.
e.g. RNRL in RNRL-Reliance Power merger, Punjab Tractors in Punjab Tractors-M&M merger etc.
I doubt any other bank will want to take over voluntarily given the cloud of uncertainty.
Whether it will post loss or not nobody is in a position to predict, but operating metrics of the bank are dismal.
I would also caution you against taking the book value as gospel.
Now the call you have to take is, if the situation will improve and if it does then, will it lead to significant appreciation in share price?
I'll wait for the 14th February result. As I said I hold 10 shares. But I don't plan to own more than 50 shares. But I won't enter until the share goes below 40 levels.As we all know the NPA threat on all banks are still pending. Things can go worst when the Greece default happens.As other country too will give signals of their worst case.
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Originally Posted by neeraj
Dhanlaxmi Bank has recovered from the lows and presently trades 2 percent higher at Rs 57.20 on reports of the bank being acquired by either South India Bank or Federal Bank. The report however, has been denied by both the banks.
A new merger on the way or a rumor ?
I am also thinking. But I am more cautious as already on 2 banks I am holding are in loss. Karnataka and DCB.
Unless some news about some player come up I won't touch it.
But hope not GTB type think happens where shareholder got nothing.
Dhanlaxmi Bank
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