Dhanlaxmi may exit PCA framework soon

After bank posts net profit for 2 consecutive quarters

THRISSUR: Dhanlaxmi Bank, the lone private sector bank under the prompt corrective action (PCA) framework and the smallest Kerala-based bank, is likely to escape the list that has kept the bank on a tight leash as far as business is concerned.

Dhanlaxmi has posted a net profit of Rs16.90 crore for the third quarter ending December 31, 2018, thus enjoying the comfort of reporting profit for two consecutive quarters after a long gap, the previous quarter having witnessed Rs12.15 crore net profit.

According to informed sources, the Dhanlaxmi Bank management has already approached the Reserve Bank of India (RBI) on February 14 to apprise of the development and to seek removal of the bank from the PCA.

However, businessbenchmark.news has not been able to confirm the development with the bank management, as eliciting a response from the bank officials was difficult as has always been.

The third quarter of the current financial year will mark a turnaround for the Kerala banking, as all banks from the state reported profit during the third quarter after a gap of several quarters.

Catholic Syrian Bank (CSB), the other bank that had been in bad shape until recently also reported a net profit for the period under review after a gap of several quarters.

Though there were 12 banks, 11 PSU banks and one private sector bank on the PCA list, three PSU banks – Bank of India, Bank of Maharashtra and Oriental Bank of Commerce have been freed from the list more than two weeks ago letting them to be off the hook of various restrictions on lending and expansion of businesses.

PCA framework is invoked on banks when they breach any of the three key regulatory trigger points (or thresholds) – capital to risk weighted assets or net non-performing assets (NPA) or return on assets (RoA).

Depending on risk thresholds set in PCA framework, banks are slapped with restrictions such as on dividend, branch expansion, directors’ compensation, while discretionary restrictions include curbs on lending and deposits.

Obviously, the pain point that dragged Dhanlaxmi into the PCA framework was return on assets or profitability, which the bank has now overcome convincingly by reporting profits for two quarters consecutively.

In fact, the growing non-performing assets (NPA) has been identified as an underbelly for Dhanlaxmi with 8.11 per cent gross NPAs as per the latest tally, compared with 6.96 per cent a year ago. Nonetheless, the net NPA has always been under control for the bank with 2.93 per cent being the net NPA ratio for the just concluded quarter.

On the capital aspect too, Dhanlaxmi has been rather comfortable, with the capital adequacy ratio (CAR), a gauge that measures the capital holding in relation to the risk weighted assets, at 13.52 per cent as of December end 2018, compared with 11.15 per cent a year ago.

The bank has been following a healthy provision policy against bad loans, and that has helped the bank in maintaining the highest provision coverage ratio (PCR) among all Kerala banks.


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