Dhanlaxmi Bank defaults on interest payment on bonds

This is the first time investors in India have had to forgo interest on a bank capital instrument. We view this as a positive development for a system with a high expectation of support for banks and where moral hazard has developed around the assumption that support could be extended to regulatory capital instruments.

Fitch Press Release

In July this year, Dhanlaxmi Bank defaulted on interest payment on its subordinated debt papers.

This is probably for the first time that such an event has taken place in India. This indicates that even the banks could be vulnerable. The so called safe haven is no longer absolutely safe.

The troubles at Dhanlaxmi Bank started a few years ago when first the top management decided to leave the bank after disagreements with the board on the investment required for growth and then some frauds at the bank.

#CreditDefault

#RidingTheRollerCoaster – 219

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