RBL Bank shares plunge 10% after Vishawvir Ahuja steps down as MD & CEO

Shares of RBL Bank plunged 10% on Monday to Rs 155 apiece on the BSE in opening deals after a slew of management changes over the weekend.

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

Shares of RBL Bank plunged 10% on Monday to Rs 155 apiece on the BSE in opening deals after a slew of top management changes over the weekend. RBL Bank’s Vishawvir Ahuja stepped down as MD & CEO, and the bank has appointed Rajeev Ahuja as the interim Managing Director and Chief Executive Officer. The Reserve Bank of India (RBI) has also appointed its Chief General Manager Yogesh K Dayal as an additional director on the board of RBL Bank. The development comes after the board accepted Vishwavir Ahuja’s request to proceed on medical leave. The lender allayed customers’ fears saying these developments are not on account of any concern on advances, asset quality and deposits level of the bank.

The Reserve Bank of India also issued a clarification in the matter. It said, “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 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,” it added.

Management saga could delay business normalization story: Emkay

Brokerage house Emkay believes that in order to comfort investors, more explanation will be required from management to justify the sudden exit of Vishwavir Ahuja nearly six months before his term ends (Jun’22) and the RBI’s intervention (typically seen in weak banks like Ujjivan, Dhanlaxmi, LVB, J&K Bank). However, there is some comfort from the appointment of Rajeev Ahuja (part of the turnaround journey) as interim MD & CEO, healthy liquidity buffers/capital ratios (Tier I at 15.5%) and management’s strategic intent to change the portfolio mix toward secured assets.

However, near/medium-term business/asset quality dislocation is inevitable. Thus, the earning estimates have been cut for F22/FY23/FY24 by 176%/13%/12%. The brokerage also cut P/ABV multiple to 0.7x Dec’23E from 0.9x. Accordingly, the TP has also been trimmed to Rs165 from Rs 215, given lower RoE (8- 10% over FY23-24E vs. earlier 9-11%) and near-term management uncertainty. Retain Hold with UW in EAP.

Kotak suspends RBL Bank rating till there is more clarity

In its note, the brokerage firm mentioned that their prior positive rating on the bank was driven by steady recovery in credit card portfolio and a gradual recovery expected in MFI portfolio over the next few quarters along with lower slippages leading to lower provisions and path to normalization in RoE. Liability mix showing improvement and inexpensive valuations were the other reasons behind the positive rating. Given the fresh challenges ahead, it has moved its rating to ‘Rating Suspended’. The brokerage firm will look at the situation unfolding before they reinstate their rating and FV. For now, no changes have been made to earnings estimates.

Current developments raise concerns about bank’s ability to sustain a turnaround : Motilal Oswal

RBl has reported a weak operating performance in recent years on elevated provisions and tepid NII trends, which adversely affected profitability. On the business front, loan growth remained muted, affected by a sharp decline in Micro Banking and the Business loan portfolio. However, the Credit Cards segment has shown a healthy recovery as card acquisition has picked up, while spends have seen a robust recovery. On the asset quality front, slippages remain elevated, while the increase in restructured book was led by the Secured business loans and the Micro Banking portfolio, said Motilal Oswal Financial Services Ltd.

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, it added. The brokerage house has thus put its rating under review and will remain watchful of further developments and await further clarity in the 3QFY22 result.

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