Everything You Need to Know About the RBI's Surprising Move Against RBL Bank

It appears that everything is not well with the RBL Bank due to the course of events over the last two days.

Shares of RBL Bank hit a 52-week low of Rs 138. The stock was locked at the lower circuit of 20% in early trade today. The mood of investors was hammered by unfavourable news over the weekend as well as uninspiring brokerage commentary.

The stock has been under pressure for the past two sessions, losing about 22%.

What is the reason behind the falling share price?

In an unexpected move, the Reserve Bank of India (RBI) appointed Yogesh Dayal, the chief general manager in-charge of department of communication, as an additional director on the board of the RBL Bank for up to two years effective 24 December 2021.

Later in the day, 24 December, the bank communicated to the exchanges that RBL Bank's long-term MD and CEO Vishwavir Ahuja, a veteran banker, whose tenure was set to expire in June 2022 has gone on leave with immediate effect.

Following that, Executive Director, Rajeev Ahuja, was designated the bank's interim MD and CEO, subject to regulatory approvals.

RBL's management could only give a small clarification on what caused Dayal's appointment as an additional director during a conference call with analysts after the RBI's decision.

Meanwhile, this event will cause uncertainty among investors. It can have negative impact on the stock.

According to a leading global brokerage firm CLSA,

• RBI appointing an additional director to RBL Bank's board is a surprise move and in the past, this action by the RBI has usually come when banks have been in trouble. This move will lead to uncertainty in the near term.

It's not unusual for the RBI to investigate banks.

Due to concerns about asset quality, inability to raise capital, weak operating performance, and to strengthen the board as well as corporate governance, it has previously appointed an additional director to the boards of Jammu & Kashmir Bank, Yes Bank, Dhanlaxmi Bank, and Ujjivan Small Finance Bank.

Company's financial health

The abrupt resignation of Vishwavir Ahuja as CEO of RBL Bank, as well as the RBI's decision to appoint a candidate to the bank's board of directors, have heightened scrutiny of the private lender's financial stability and asset quality.

In July-September quarter, the bank had reported sub-par profits of Rs 300 m due to continued slow growth, margin contraction and elevated provisions.

Asset quality continued to hurt as the gross non-performing assets (GNPA) ratio was up by 41 bps quarter on quarter (QoQ) due to higher stress in microfinance institutions (MFI)/Cards.

In a statement, the interim CEO Rajeev Ahuja said,

• The bank has full support of RBI.
  
  We have absorbed the challenges on our asset quality which were largely due to the pandemic.
  
  Capital adequacy was 16.3% and will be in a similar range this quarter. Liquidity Coverage ratios have been well above regulatory requirements - it was 155% for the September quarter.
  
  The NPA position of the bank will also be on an improving trend. We want to point out here that we have been upfront and transparent on any challenges that we have faced in our various business segments in the past.

The statement further said slippages had peaked in quarter two and will be improving this quarter and the next as guided previously.

Investors approach RBI to acquire stake in RBL Bank

Following the news earlier, there were speculation that ace investors Rakesh Jhunjhunwala and Avenue Supermarts' founder RK Damani approached the RBI to buy a 10% stake in RBL Bank.

However, according to a media report, Mr. Jhunjhunwala has denied any interest in buying stake in private lender RBL bank.

We don't know the exact reason behind the RBI's surprise move.

We can assume the the bank was not fully complying with regulations regarding disclosures. Or there might be a problem with personal integrity. It could also be the case that something was being done incorrectly on a regular basis.

We can't say for sure.

We can also assume that the change in leadership going ahead could help the company improve asset quality.

Equitymaster's view on RBL Bank

We reached out to Aditya Vora, Financial Writer at Equitymaster, for his view on RBL Bank.

Here's what he has to say...

• The writing on the wall for RBL bank was evident for a long time. Continuous underperformance despite major private sector banks like Kotak, HDFC Bank touching all-time highs reflected issues in the company.
  
  RBL bank was touted to be the next HDFC Bank by some on Dalal Street, however with the current scenario, the hope is, it does not go the YES Bank way.
  
  However purely in terms of valuations, when the YES Bank saga unfolded, YES Bank was trading at above price to book of 3 times, which was expensive.
  
  However, RBL Bank over the past 1 year has been trading at price to book of less than 1.
  
  In banking, the most difficult part is to ascertain the quality of the book.
  
  Hence while we speculate on the skeletons coming out of the closet, it moreover looks like RBL is trying to be cautious unlike at the time of YES Bank where it was late.

How the stock markets reacted to RBL Bank

Shares of RBL Bank opened the day at Rs 155.3 on the BSE and Rs 155.7 on the NSE.

Its share price closed at Rs 141.8 (down 17.8%) on the BSE and Rs 141.6 (down 18.1%) on the NSE.

The share touched its 52-week high of Rs 274 and 52-week low of Rs 138 on 7 January 2021 and 27 December 2021, respectively.

Over the last 30 days, the RBL Bank share price is down 27%. Over the last one year, the company's share price is down 35%.

About RBL Bank

RBL Bank formerly Ratnakar Bank is one of India's fastest growing private sector banks with an expanding presence.

The bank offers services under six verticals namely: corporate & institutional banking, commercial banking, branch & business banking, retail assets, development banking and financial inclusion, treasury and financial markets operations.

As on December 2020 the bank services over 9.1 million customers through a network of 403 branches, 1,344 BC branches and 412 ATMs spread across the country.

For more details about the company, you can have a look at RBL Bank's factsheet and quarterly results on our website.

You can also compare RBL Bank with its peers.

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