|Rating agency Fitch Ratings has revised Dhanlaxmi Bank’s outlook to ‘stable’ from ‘positive’. The outlook revision reflects expectations that structural challenges faced by the bank from aggressive expansion in recent years are unlikely to improve its overall credit profile in the short to medium-term. Since FY09 (end-March 2009), the bank’s operating performance has been impacted by substantial loan growth, which is being increasingly funded through wholesale deposits and from large investments in infrastructure and other resources.|
The bank has increased its branch network by 40% and headcount by three times since FY08. Amid low net interest margins and a significantly high operating cost base, profitability remains weak.
Dhanlaxmi Bank’s asset quality has remained stable so far, with a gross non-performing asset ratio of 0.55% and a net NPA ratio of 0.17% as on end-September 2011. However, the moderating economic growth and high interest rate environment may impact its loan portfolio, a large part of which is not seasoned.
The bank expects to grow at a slower rate in the current financial year after the aggressive 81% loan growth in FY11. However, its capitalization is weakening (Tier I ratio: 8.73% in H1 2011-12, against 9.41% in 2010-11) from low internal capital generation, while raising fresh common equity is difficult in the current equity market environment.
The bank’s net profit for the quarter jumped by 168.51% at Rs 4.35 crore as compared to Rs 1.62 crore for the quarter ended September 30, 2010. Total income has increased by 79.11% to Rs. 410.53 crore for the quarter under review from Rs 229.20 crore for the similar quarter of the previous year.
The bank’s gross non-performing asset ratio improved 71 basis points to 0.55% aided by strong recovery in bad loans. The absolute amount of net non-performing assets also narrowed to Rs 17.5 crore as of September-end from Rs 50.4 crore a year ago.
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