What’s the news?

As of 25th December, the MD & CEO of the RBL bank, Mr Vishwavir Ahuja has gone on leave with immediate effect.

Tell me more!

Last week, the Reserve Bank of India appointed an additional director — RBI Chief General Manager Yogesh K Dayal — to the board of RBL Bank

Following this development, the current MD & CEO of the bank, Mr Vishwavir Ahuja went on leave with immediate effect. The board subsequently appointed Mr Rajeev Ahuja (currently the Executive Director) as interim MD & CEO of the Bank with immediate effect.

Why is this important?

RBL Bank has been a good example of a regional bank taking larger steps and morphing itself into a larger entity with a national presence. The bank has seen explosive growth (CAGR: 19%) with its total advances growing from 29,449 Crs in 2017 to 58,622 Cr in 2021. A sudden change in the leadership of the bank has left investors with a lot of questions.

The Bank Quells Concerns with a Conference Call

Following were the key takeaways from the conference call on 27th Dec 2021

1. As per the interim CEO, the impending exit of the current CEO and the appointment of the independent director by the RBI are not due to any concerns on advances, asset quality and deposit levels. In fact, Net NPA is expected to fall below 2% before or by end of FY22.

2. Business momentum has been improving since Covid-19 second wave and the management expects credit cost for the second half to be between 50%-60% of H1FY22.

3. The management believes the appointment of the independent director is a reaffirmation of two things; a) the regulator’s interest in the improvement of risk management processes and compliance and b) enabling the transition from one management to another to happen as smoothly as possible.

4. The nomination committee will nominate the names for MD and CEO of the bank based on their analysis which will be further sent to RBI

5. Interim MD and CEO Rajeev Ahuja emphasised that the Bank had excess liquidity of about ₹15,000 Cr, refinance from the RBI and bank lines to manage any volatility in deposits.

The regulator steps in to lend a perspective

The Reserve Bank of India stated that the RBL Bank is well capitalised and that its financial position remains satisfactory. 

Calling attention to RBL Bank’s half-yearly audited results as of September 30, 2021, the RBI said the bank has maintained a comfortable Capital Adequacy Ratio of 16.33 % and a Provision Coverage Ratio of 76.6 per cent. 

The Liquidity Coverage Ratio (LCR) is 153 % as of December 24, 2021, against the regulatory requirement of 100 %. Bank’s GNPA / NNPA on Sep 2021 stood at 5.40% / 2.14%. 

Referring to speculation relating to RBL Bank in certain quarters, the RBI on Monday said there is no need for depositors and other stakeholders to react to speculative reports and the Bank’s financial health remains stable.

How did the Stock Market React?

The RBL Bank stock had a dramatic day on Monday (27th Dec 2021) as developments over the last weekend had a ripple effect. The Bank’s stock price slumped 18.32 per cent (or by ₹31.60) to close at ₹140.90 apiece against the previous close of ₹172.50. The stock hit a low of ₹132.35 and a high of ₹155.25. 

Should I be concerned?

For investors in financial instruments, that are managed by professionals, we believe that the fund managers are best positioned to assess the impact and take action. As a depositor in the bank (if you have deposits) one can take comfort in the faith reposed by the Reserve Bank of India in the stability of the bank.

How does it impact your wealth?

We have looked into the exposure of all mutual funds. As per the latest portfolios, equity-oriented funds have an exposure of a total of Rs 1,459 Cr and Debt Funds have a total exposure of Rs 1,596 Cr to instruments issued by RBL Bank

Among the funds recommended by Scripbox, the only funds that have exposure to RBL Bank are Axis Liquid Funds (0.37%) and SBI Magnum Ultra Short Duration Fund (3.76%). These exposures are to debt instruments issued by the bank.

With respect to investments outside the recommended list, at this point, the impact to investors should be restricted to the change in stock price and given the vote of confidence that RBI had given, we are quite comfortable. We believe that Fund Managers will make their individual assessments and take appropriate actions in their portfolios.