RBL Bank shares hit lower circuit on brokerage downgrades

Even as the RBI and bank’s management tried to assure markets of the bank’s fundamentals, analysts have downgraded the stock rating to ‘sell’ and reduced the target price of RBL Bank shares because of concerns over the asset quality, citing more need for transparency in succession planning.

Shares of HDFC Bank, PNB, ICICI Bank, and Kotak Mahindra Bank advanced up to 1.4%. RBL Bank ended being the top loser in the index.
Shares of HDFC Bank, PNB, ICICI Bank, and Kotak Mahindra Bank advanced up to 1.4%. RBL Bank ended being the top loser in the index.

Shares of RBL Bank tanked over 20% intra-day on Monday and hit 52-week low of Rs 132.35 on the BSE, after the recent management changes at the bank and appointment of a nominee of the Reserve Bank of India (RBI) to its board. However, the stock recovered around 7% from the day’s lows to end at Rs 141.75, down 17.8%, after the RBI allayed fears by saying that the bank was well capitalised and its financial position remained satisfactory.

Even as the RBI and bank’s management tried to assure markets of the bank’s fundamentals, analysts have downgraded the stock rating to ‘sell’ and reduced the target price of RBL Bank shares because of concerns over the asset quality, citing more need for transparency in succession planning.

The Nifty Bank index on Monday gained 200.85 points to close at 35,057.90. Shares of HDFC Bank, PNB, ICICI Bank, and Kotak Mahindra Bank advanced up to 1.4%. RBL Bank ended being the top loser in the index.

ICICI Securities said RBI’s similar action at other banks in the past, including appointing additional directors on the boards of YES Bank, J&K Bank, Dhanalakshmi Bank, Ujjivan Small Finance Bank, and Lakshmi Vilas Bank, hinted at issues related to compliance or asset quality or governance or business risk. Therefore, repercussions of these developments on depositors, employees, and consequent derailment of confidence and disruption would be key monitorable going forward.

The brokerage downgraded the stock, assigning a ‘Sell’ rating with a revised target price of Rs 130 from Rs 181. “RBL’s Q2FY22 (July-September) performance lagged peers on most operating metrics: slippages of 8.6%, GNPAs up 40 bps to 5.4%, credit cost at 4.6%, restructuring at 3.35%, NIMs off 30bps to 4.06%, growth just flat QoQ/YoY. We need to closely monitor if strategy and performance are clearly as per the guidance,” ICICI Securities said.

Analysts at Motilal Oswal said RBL Bank would likely report losses in FY22, despite management guidance of 1% RoA by year-end. Elevated asset quality stress in recent years, spiking of slippages in the unsecured business of microfinance and credit cards, and sluggish loan growth over the past two years are the key reasons cited by the brokerage for the negative outlook. “Current developments have raised concerns about the bank’s ability to sustain a turnaround in its operating performance, while at the same time raising worries of similar actions by the regulator on other mid-size banks, where the operating performance has been sub-optimal. We, thus, put our rating under review and remain watchful of further developments and await further clarity in the 3QFY22 result (October-December),” Motilal Oswal said.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express Telegram Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.