RBL Bank tumbles after India CB appoints director to board

RBL Bank Ltd. shares plunged after a decision by India’s central bank to appoint a new director to the board raised concerns about the outlook for the small private-sector lender.

The stock dropped as much as 25 percent in Mumbai on Monday, the biggest decline since listing in 2016. It later pared the retreat to about 13 percent as of 1:15 p.m. local time after the Reserve Bank of India said the lender’s financial health “remains stable.”

The RBI appointed Yogesh Dayal, a career central banker, to RBL’S board for two years on the weekend. Meanwhile, Rajeev Ahuja was elevated as the interim managing director and chief executive officer of the bank, succeeding Vishwavir Ahuja who went on medical leave.

The central bank ’s action comes as RBL grapples with a surge in soured loans to consumers during the pandemic, prompting the lender to boost provisions that led to a first-quarter loss. The bank returned to profit in the quarter ended Sept. 30, and Rajeev Ahuja said on the weekend that the RBI’S move wasn’t motivated by worries over asset quality and deposit levels.

RBL is well capitalized and its financial position “remains satisfactory,” the central bank said in a statement on Monday. The firm has maintained a “comfortable” capital adequacy ratio of 16.33 percent and a provision coverage ratio of 76.6 percent, the RBI said.

Shares of RBL are now down about 35 percent this year, trimming the lender’s market value to 91 billion rupees ($1.2 billion). That compares with about 8 trillion rupees for HDFC Bank Ltd., India’s most-valuable lender. RBL in October reported quarterly net income of 308 million rupees, down 79 percent from a year earlier.

The RBI said it appoints additional directors at private-sector banks when it’s felt that the board needs closer support in regulatory or supervisory matters.

India’s central bank has taken similar steps at other lenders, such as Yes Bank Ltd. and Dhanlaxmi Bank Ltd., when it saw signs of “weakness,” Anand Dama, an analyst at Emkay Global Financial Services Ltd., wrote in a note on Saturday.

Dayal’s appointment will be taken adversely by investors, keeping the stock under pressure, while the management changes add to uncertainty, Dama said.

RBL, founded in the 1940s, has witnessed a steady deterioration in its asset quality in the past two to three years. It started off with a sudden surge in nonperforming loans to companies and was followed by soured credit card and microfinance debts during the Covid-19 outbreak, Dama said.