Rating agency, India ratings has maintained its BBB- long-term Issuer rating for the private sector lender, Dhanlaxmi Bank. The rating agency also kept the BBB- rating on the bank's debt unchanged.

"The RWN reflects the likelihood of a further weakening of Dhanlaxmi's capital base from an expected sharp deterioration in its asset quality, amid an already weak operating performance. The bank's capital buffer has depleted from four consecutive quarters of net losses," India Ratings said in a statement.

It said that even as the bank was able to make an operating profit during the second quarter of the financial year but its credit costs rose during the quarter and its loan-book continued to decline. The bank is planning to raise Tier I capital during the third and fourth quarter of the financial year till March, 2013.

The agency said that if the bank is able to raise the capital successfully and bring stability in its operating performance, its outlook could be revised to Stable. On the other hand, it warned that if the bank's capital buffer weakens, asset quality deteriorates or its operating performance declines, then the bank could be further downgraded.

The agency is concerned over the bank's ability to maintain asset quality amid slowing economic growth and high interest rates in the country.