Shares of RBL Bank fell nearly 23% on the National Stock Exchange (NSE) on Monday (June 13), the first day of trading since the private bank declared on Saturday that R. Subramaniakumar will take over as the new bank chief for a period of three years.
The bank’s shares started trading at Rs 102.25 on Monday, hitting an intra-day low of Rs 85.20, before ending at Rs 87.60 on the NSE.
A management transition from RBL Bank was expected by the markets, but R. Subramaniakumar’s appointment at the bank made investors worried over the possibility of a repeat of the YES Bank-like episode at RBL, a senior banking analyst said.
“Mr Subramaniakumar is an ex-PSU banker and historically such appointments at financial institutions have been associated with weak asset quality and/or governance structure,” wrote analysts at foreign brokerage CLSA.
“Hence, the CEO appointment raises more questions including the continuity of the existing top leadership at the bank,” it added.
Management changes
On December 25, the RBI announced its decision to appoint its official, Communication Department Head Yogesh Dayal, as a Board member at RBL bank.
The announcement spooked investors considering that the regulator had earlier conducted similar action in the case of YES Bank, Dewan Housing Finance Corp where Subramaniakumar himself was the Administrator, and at Punjab and Maharashtra Co-operative Bank.
But soon after RBI’s announcement, more bad news followed the same day with RBL Bank informing exchanges that its erstwhile MD & CEO Vishwavir Ahuja, had gone on leave with immediate effect.
The bank named Executive Director Rajeev Ahuja as the new interim MD and CEO of the bank and went into a fire-dousing mode.
"The (recent) developments are not on account of asset quality, advances issues. The bank has the full support of the RBI," Rajeev Ahuja told reporters two days after taking over as the interim chief of the bank.
“There are some deep learnings. Some of the mistakes we made…clearly one of the biggest lessons is to have more granularity in deposits and balance between secured, unsecured is essential (Sic),” Ahuja said.
With pressure over the bank’s share price and a looming possibility of depositors pulling capital en-masse and having a run on the bank, the RBI was forced to issue a clarification release.
“There has been speculation relating to the RBL Bank Ltd. in certain quarters which appears to be arising from recent events surrounding the bank,” the RBI said on December 27.
“The Reserve Bank would like to state that the bank (RBL Bank) is well capitalised and the financial position of the bank remains satisfactory…As such, there is no need for depositors and other stakeholders to react to the speculative reports. The bank’s financial health remains stable,” it added.
But while the bank has been able to attract deposits, gaining incremental deposits will be challenging as depositors will likely mobilise their savings with other private banks with solid management structures, the analyst quoted earlier said.
“We noted in our earlier report that the liability side also remains challenging for RBL Bank as savings and retail LCR deposits are still below 2Q22 (September end) levels and the rising rate cycle will pose an additional constraint,” the CLSA report said.
CLSA rejected commenting on this story.
Key financials
In a post-Q4FY22 earnings call, Rajeev Ahuja told analysts that despite negative news flow, the bank has been able to increase its deposit base to about Rs 79,000 crore as of March end.
“While the large deposit accretion over these three months did happen because of deposit flows from all segments. But even on this larger base, we were able to improve the retail LCR and CASA (liquidity coverage ratio and current account and savings account ratio) compared to December 31, 2021,” he said.
“As we progress during financial year ‘23, we are confident of continuing to walk on this path of increasing granularity in deposits with a larger proportion of incremental deposits coming from retail, and given a surplus liquidity we may not increase the overall deposit levels by a big amount,” he added.
Owing to COVID-19 and internal developments at the bank, the lender saw 2 percent year-on-year (YoY) growth in advances during January-March with its total loans standing at Rs 60,022 crore as of March end.
Of the total loan growth, wholesale loans grew 18 percent to Rs 28,693 crore while retail loans de-grew 9 percent to Rs 31,329 crore as of March end.
“As we look at financial year ‘23, retail will be back on the growth track. While we will look to consolidate our wholesale segment advances with a focus on profitability,” Rajeev Ahuja said.
Further, the bank’s capital adequacy ratio stood at 17.85 percent post a $100 million capital raise from the International Development Finance Corp in May, it informed exchanges.
Analysts at Kotak Institutional Equities said that in view of recent performance, they do not think that there were any fresh concerns with regard to RBL Bank’s asset quality.
As of March end, RBL Bank’s gross bad loan ratio stood at 4.40 percent while the net bad loan ratio was 1.34 percent.
However, the bank must provide clarity on how it intends to grow its credit cards and microfinance loans businesses as they form a major part of the bank’s profits, the brokerage said.
Retaining employees and normalisation of return on equity of the bank are the other key issues that the management must provide clarity on, it added.
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