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Why did RBL Bank hit a 52-week low and why does it continue to trend lower?

24 May 2022

RBL Bank today (Dec 27, 2021), hit a 52-week low on account of RBI’s decision on the appointment of an additional board of directors for the bank. 

A press release by RBL Bank on Dec 26, 2021, stated that Mr Yogesh K Dayal, Chief General Manager of RBI has been appointed as an additional director for a period of two years. This takes effect from Dec 24 2021 till Dec 23, 2023, or till further orders. 

What we know so far – Why is RBL going down?

  • RBI has appointed an additional director, Mr Yogesh K Dayal, on the board of RBL Bank. The role of the additional director is the same as the director on the board. Where-in he/she shall act in the best interest of the company. In this case, RBL Bank
  • RBL Bank, as per the release available in the stock exchanges, the bank’s MD and CEO, Vishwavir Ahuja, has gone on medical leave with immediate effect. Further, Rajeev Ahuja, an executive director, has been named the interim MD and CEO of the bank subject to regulatory approvals. 

What RBI’s action could imply?

As per various media reports and industry experts, there is no material information available for the recent changes. But RBL Bank has come out with a statement that the functioning of the bank is smooth and that its financial position remains robust. This doesn’t allay the concerns of the market and investors about the bank’s future. 

For one, RBI typically appoints a member to the board only if there is a need to oversee a bank’s operations, either financially or related to governance. If history is any indication, the appointment of an additional member to the board happens in case of an NPA issue (non-performing asset), or if the bank doesn’t conform to the disclosure requirements. For instance, the recent past when this has happened includes cases of Yes Bank, and Lakshmi Vilas Bank. 

According to various industry experts, it is likely that RBL Bank news has either not conformed with the disclosure requirements or the personal integrity of one of the members in question. 

Rating agencies and brokerage firms have already started reviewing their call on RBL Bank. Many have started to downgrade too which has impacted the investors’ sentiment on the bank. 

Financials of RBL – Why RBL Bank is falling?

The bank has remained profitable for 3 out of the last 4 quarters. It had reported a net loss of over Rs 45,000 crore in the April to June quarter of 2021. But recovered to a net profit of around Rs 3,080 crores. However, the bank’s asset quality has been deteriorating consistently since the quarter that ended on December 31, 2020. From a gross NPA ratio of 1.84% in December 2020, the bank’s gross NPA ratio has been hovering near 4.9-5.4% for the past two quarters. Consequently, net NPA has been above 2% for 2 quarters.

The capital adequacy ratio of the bank has been above 15% consistently. RBI mandates a capital adequacy ratio of 9% to be followed by Indian banks. CAR is the ratio of the bank’s capital in relation to the risk-weighted current assets and liabilities.

According to the management, while slippages peaked in Q2, it is expected to improve from this quarter and the next. RBL Bank slippage ratio was at 2.15% in the July to September quarter (Q2) in 2021. The management also states that the bank’s NPA position is expected to improve going forward. 

What RBI says?

The Reserve Bank of India, today (Dec 27, 2021), released a statement about the speculation around RBL Bank. The press release stated that the bank is well capitalised and the financial position of the bank remains satisfactory. It also states that there is no need for depositors and stakeholders to react to speculation as the bank’s financial health remains stable.

Further, the RBI clarified that appointment of an additional director in private banks is undertaken as and when it is felt that the board needs support in regulatory or supervisory matters.

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