As provisions swell, RBL Bank stock loses over half its value since May 2019

By: |
February 20, 2020 1:30 AM

BSE data show that RBL Bank's MD and CEO Vishwavir Ahuja has sold two lakh shares in the lender in February through open market, bringing down his stake to 1.95% from 1.98% in December 2019.

Analysts at JP Morgan indicated in a note that RBL has a fairly large 'BBB' book of 24% which could be at a risk of downgrade given the current macros.Analysts at JP Morgan indicated in a note that RBL has a fairly large ‘BBB’ book of 24% which could be at a risk of downgrade given the current macros.

Shares of RBL Bank are currently trading down about 56% since the highs seen in May 2019 as aggressive provisioning of bad loans continued to make a dent in the bank’s bottom line despite recording stellar operating metrics.

Since January 2020, the stock has lost about 11%.

BSE data show that RBL Bank’s MD and CEO Vishwavir Ahuja has sold two lakh shares in the lender in February through open market, bringing down his stake to 1.95% from 1.98% in December 2019.

The private sector lender has recorded disappointing bottom line over the last two quarters. It reported a 69% drop in its net profit for the quarter ended December 2019 at Rs 69.95 crore, led by a significant increase in its provisions amounting to Rs 638.29 crore ? a 20% rise sequentially and a 297% surge over the same period last year. The situation was worse in Q2FY20 when the lender saw its profits fall 73% to Rs 54.30 crore due to rise in bad loans.

The bank’s asset quality has also deteriorated over the last two quarters. Gross non-performing asset (GNPA) ratio rose from 1.38% in the quarter ended June 2019 to 2.6% in the quarter ended September 2019 and to 3.33% in Q3FY20. Similarly, the net NPA ratio has also been rising sequentially over the last two quarters, having risen to 2.07% in Q3FY20 from 0.65% in Q1FY20. RBL Bank’s quarterly provisions have been rising continuously over the last five quarters. The bank has a deposit base of Rs 62,907 crore against advances of Rs 59,635 crore at the end of December 2019.

The bank’s management has continued to maintain the stressed assets watch list at Rs 1,800 crore, of which Rs 1,500 crore has already slipped so far, while the rest is expected to slip in the fourth quarter, according to analysts. During Q3FY20, the bank saw Rs 700 crore of wholesale loans getting downgraded to ‘BB’ and below rated book.

Analysts at JP Morgan indicated in a note that RBL has a fairly large ‘BBB’ book of 24% which could be at a risk of downgrade given the current macros. The bank’s management, however, told analysts it is making efforts for recoveries. “We have aggressively provided as you can see it’s much above the regulatory provisions… the recovery and resolution efforts are ongoing,” Jaideep Iyer, head-strategy at RBL Bank, said during the Q3FY20 earnings call.

In contrast to the deteriorating asset quality, RBL Bank continued to record strong performance in its operating metrics. In Q3FY20, it declared a 41% rise in its net interest income at Rs 922.60 crore while recording a 47% rise in pre-provision operating profit (PPOP) at Rs 732.17 crore against the same period last year. This was aided by higher net interest margins (NIMs) at 4.57%, which stood at an all-time high. In December 2019, the bank shored up its capital base by raising over Rs 2,700 crore via a qualified institutional placement (QIP) and preferential allotment. RBL Bank’s capital adequacy ratio (CAR) as at December 31, 2019, stood at 15.66% against 12.86% in December 2018.

Shares of RBL Bank closed up 1.49% at Rs 306.55 on the NSE on Wednesday.

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