RBL Bank Shares Plunge 20% As CEO Goes On Leave; Analysts Turn Cautious, RBI Allays Fears

The RBI has appointed its Chief General Manager Yogesh K Dayal as an additional director on the board of RBL Bank

New Delhi: Shares of private lender RBL Bank plunged 20 per cent to hit 52-week low at Rs 138 on Monday over negative developments in the weekend and dull brokerage commentary that weighed on investors’ sentiment. 

The bank has announced that its Managing Director (MD) and Chief Executive Officer (CEO) Vishwavir Ahuja has stepped down and the Board has appointed Rajeev Ahuja as the interim MD and CEO of the bank with immediate effect. 

The other terms and conditions of Rajeev Ahuja's appointment, such as remuneration, would remain unchanged.

The Reserve Bank of India (RBI) has appointed its Chief General Manager Yogesh K Dayal as an additional director on the board of RBL Bank.

RBL Bank in a regulatory filing said that the Board has accepted “the request of Vishwavir Ahuja to proceed on leave with immediate effect”.

Vishwavir had been heading the private sector lender for the past one decade.

The bank said it received a communication from the RBI on December 24, and appointed its chief general manager Yogesh K Dayal as an additional director on the Board of RBL Bank for two years, with effect from December 24, 2021 till December 23, 2023 or till further orders.

“We wish to mention that the bank is well placed to execute its business plan and strategy as communicated during our earnings call dated October 28, 2021. The business and financial trajectory continues to be on improving trend, post absorbing the challenges due to the pandemic,” the bank said.

The RBI allays fears of customers and investors over RBL Bank. The central bank in its statement on Monday stated, "There has been speculation relating to the RBL Bank in certain quarters which appears to be arising from recent events surrounding the bank. The Reserve Bank would like to state 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, 2021, the bank has maintained a comfortable Capital Adequacy Ratio of 16.33 per cent and Provision Coverage Ratio of 76.6 per cent. The Liquidity Coverage Ratio (LCR) of the bank is 153 per cent as on December 24, 2021 as against regulatory requirement of 100 per cent. Further, it is clarified that appointment of Additional Director/s 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/ supervisory matters.  As such, there is no need for depositors and other stakeholders to react to the speculative reports. The bank’s financial health remains stable."

CLSA in a note said that the central bank 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, said CLSA. CLSA has also trimmed its target price on the stock to Rs 200 from Rs 230.

Another brokerage firm ICICI Securities has downgraded the rating to ‘sell’ and cut target to Rs 131 from Rs 181. The uncertainty looms as the RBI inducts additional director, while MD and CEO stepped down. This interim adverse development can drag valuation to as low as 0.55x FY23 book.

According to RBL, the financials of the bank remain robust with healthy capital adequacy of 16.3 per cent, high levels of liquidity as reflected through Liquidity Coverage Ratio of 155 per cent, stable net NPA of 2.14 per cent, credit deposit ratio of 74.1 per cent and leverage ratio of 10 per cent, for the quarter ended September 30, 2021. In addition, the bank has also improved the granularity of its deposits and advances, the bank said.

Meanwhile, bank employee unions’ body AIBEA had written a letter to Finance Minister Nirmala Sitharaman expressing concern that everything was not right at RBL Bank and it was going the YES Bank and Lakshmi Vilas Bank way. “We are worried and concerned about the developments that are taking place in the affairs of RBL Bank, the Kolhapur based private bank. The sequence of events leading to the sudden exit of Vishwavir Ahuja along with induction of Dayal from RBI on the board as additional member indicates that everything is not ok with the bank,” AIBEA said in its letter to the finance minister.

While the board recommended his continuation, it is learnt that RBI has agreed only for a short term up to 2022, AIBEA said further.

There are also reports that the bank has been over indulging in retail credit, micro-financing and credit cards and consequently has burnt its finger resulting in weakening the financials of the bank, it said.

“In the background of the problems encountered by private banks like Yes Bank and Lakshmi Vilas Bank last year, we urge upon you to immediately intervene in the matter in the interest of the depositors of this private sector bank and consider necessary steps including merger of this bank with a public sector bank,” stated AIBEA’s letter to Sitharaman.