Dhanlaxmi Bank Plans To Close 30 Branches And Sack 800 Employees

Dhanlaxmi Bank has again made its way to the headlines but for something that will bring cheer to its shareholders. Earlier, the bank was in the news for Fitch downgrading it, its CEO resigning from the board, allegations raised by the All India Bank Officers Confederation (AIBOC), etc. However, due to a new development, the scrip in today’s trade has moved higher by 1 per cent to Rs 70.95.

As per the media reports, as a part out of its revival plan submitted by P G Jayakumar, managing director and CEO of the bank, 30 of its branches will be closed down. This is after the bank earlier went into a high expansion mode, resulting in cost pressures impacting the profitability of the bank. For the December quarter of 2011 the bank posted a loss of Rs 36.87 crore against a profit of Rs 7 crore in a similar period last year.

Further, the branches which may be closed down are operating in a very high cost area. Also, around 800 employees would be taken off the rolls, thus leading to further reduction of cost for the bank. However, a question that remains unanswered is about what will happen to the accounts that have been opened with these branches. Will each of these accounts be transferred to other branches or will they be closed? We expect some agitation on the customer front and withdrawal of deposits may impact the financials of the bank.

With the bank reporting losses in its books, Fitch International in the past had downgraded its rating to BBB- from BBB. In February, Amitabh Chaturvedi, who was the MD and CEO of the bank, resigned due to a difference of opinion with the other board members of the bank on issues related to business strategies. For more information read our previous Mindshare report titled ‘Dhanlaxmi Bank – Surrounded By Dark Clouds’.

If this development improves its financial performance, the results will be reflected in the first quarter of FY13. As of now one should adopt a ‘wait and watch’ approach with the scrip and check out the March 2012 quarter numbers to take some cues.