Reserve Bank moves to allay fears as RBL Bank stock tanks
The Reserve Bank of India assured that the lender’s financial health remains stable
MUMBAI: Jolted shareholders of RBL Bank rushed to sell-off on Monday even as the Reserve Bank of India (RBI) assured that the private lender’s financial health remains stable and there is no reason for depositors and other stakeholders to react to speculative reports.
RBL stock tanked 23% intraday, closing at ₹140.90 on the BSE. Shareholders remained concerned about compliance issues in the bank after a slew of sudden changes in management.
“There has been speculation relating to the RBL Bank Ltd. in certain quarters which appears to be arising from recent events surrounding the bank,” RBI said two days after it appointed an additional director on the board of the private lender.
The regulator said that the bank is well capitalised and the financial position of the bank remains ‘satisfactory’. As per half yearly audited results as on
September 30, the bank has maintained a comfortable capital adequacy ratio of 16.33% and provision coverage ratio of 76.6%.
The liquidity coverage ratio (LCR) of the bank is 153% as on 24 December as against regulatory requirement of 100%, RBI said.
“Further, it is clarified that appointment of additional directors in private banks is undertaken under Section 36AB of the Banking Regulation Act, 1949 as and when it is felt that the board needs closer support in regulatory or supervisory matters,” it said.
However, analysts estimate pain ahead for the company as the management saga could delay business normalization and the stock may soon be replaced in the Nifty Bank index.
According to Anand Dama, analyst, Emkay Global Financial Services inorder to comfort investors, more explanation will be required from management to justify the sudden exit of Vishwavir Ahuja nearly six months before his term ended (June 2022) and the RBI’S intervention (typically seen in weak banks like Ujjivan, Dhanlaxmi, LVB, J&K Bank).
Anand Dama believes that there was RBI’S long-term discomfort with the unsecured heavy asset-side construct creating asset quality risks as seen during covid and poor compliance with its directives could have possibly led to its swift intervention, apart from ensuring a smooth management transition and comforting the stakeholders.
“That said, we draw some comfort from the appointment of Rajeev Ahuja (part of the turnaround journey) as interim MD and CEO, healthy liquidity buffers/capital ratios (Tier I at 15.5%) and management’s strategic intent to change the portfolio mix toward secured assets. However, near/medium-term business/asset quality dislocation is inevitable,” he said.
Dama has cut earnings estimates of RBL Bank for FY22, FY23 and FY24 by 176%, 13% and 12% respectively, factoring in risks like lower return on equity (ROE) and near-term management uncertainty. Meanwhile, Abhilash Pagaria, analyst, Edelweiss
Alternative Research estimates RBL Bank is likely to be removed from the Nifty Bank index as part of the semi-annual index rejig of Nifty Indices which will be announced in the second half of February 2022.
Foreign portfolio investors (FPIS) with a stake of 29.20% stand to lose most if the stock continues to fall further. Retail investors have exposure of 17.49% in the bank, while mutual funds hold 15.81%, high net-worth individuals (HNIS) have 7.75% stake and insurance companies own 5.31% in the September quarter, according to BSE data. The government also holds 0.36% in the bank.
In this year so far, the stock has fallen 39% falling 23% in December alone. In previous two years, the stock has slipped 33-40% each. The stock had hit life-high of ₹716.55 on May 28, 2019 and has lost 80% since then.
On Saturday evening, the bank said in two separate regulatory statements that RBI has appointed chief general manager Yogesh Dayal on its board as an additional director and that chief executive officer (CEO) Vishwavir Ahuja will go on immediate leave. The bank’s interim chief executive Rajeev Ahuja said on Sunday that Vishwavir Ahuja went on medical leave.
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