RBL Bank collapses 20% after CEO leaves

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  • RBL Bank announced that its longtime CEO Vishwavir Ahuja went on leave, Rajeev Ahuja taking the interim lead.
  • Apart from that, the Reserve Bank of India also intervened by appointing an additional director to the board of directors of the bank.
  • Now reports suggest that Rakesh Jhunjhunwala and DMart Radhakishan Damani want to take a 10% stake in the bank.

RBL Bank is in a kind of mini-crisis, with its longtime CEO and CEO Vishwavir Ahuja on leave and the Reserve Bank of India appointing an additional director to the bank’s board. The stock fell 20% on Monday, December 27, the first trading day after the decision was made public.

RBL Bank share price since November 2021ESB / Business Insider India / Thrive

The turn doesn’t end there either – leading investors Rakesh Jhunjhunwala and Radhakishan Damani of DMart have
would have approached RBI to take a 10% stake in RBL Bank, which may take advantage of the opportunity on the horizon.

RBL Bank shares ended the day down almost 3% on Friday. In 2021 so far, the company has lost a quarter of its value even as the Bank Nifty index has gained more than 11%.

Why does the RBI interfere in the affairs of RBL Bank?

While the RBI and RBL Bank have been tight-lipped about the trigger for the central banker’s intervention, reports suggest there is probably more going on between the lines.

One problem that has been repeated elsewhere is the quality of the bank’s assets – the gross non-performing assets (gross NPA) ratio rose to 5.4% in the September quarter from 3.34 % the previous year.

Arrears increased in the September quarter, with the end of the moratorium on payments, particularly in the microfinance segment, which accounts for 9% of RBL Bank’s total loan portfolio.

RBL Bank collapses 20% after CEO leaves
RBL Bank microfinance segment GNPAB&K Research / Business Insider India / Flourish

However, the increase in bad debts may not be enough reason for the RBI to step in. Earlier this year, the RBI approved the extension of Vishwavir Ahuja as the bank’s CEO until June 2022. Ahuja going on leave halfway through his tenure also signals that there are deeper issues at hand. the bank that have not yet been disclosed to the public.

“The sequence of events leading up to the sudden exit of Mr. Vishwavir Ahuja as well as the induction of Dayal from the RBI to the board of directors as an additional member indicates that all is not well with the bank,” noted a letter from the All India Bank Employees Association. (AIBEA) to Minister of Finance Nirmala Sitharaman.

If Jhunjhunwala and Damani are interested, some things may work at the bank

Billionaire investors Rakesh Jhunjhunwala and Radhakishan Damani would like to take a 10% stake in RBL. The two have yet to comment on the matter and investors should take these unconfirmed reports with a handful of salt. As the following meme reminds us on social media:

RBL Bank collapses 20% after CEO leaves
Twitter

According to Rajeev Ahuja, new interim CEO of RBL Bank, the bank’s financial situation remains strong. “These developments are not due to concerns over advances, asset quality and the level of bank deposits. The bank has the full support of the RBI, ”he said.

In the September quarter, RBL posted a net profit of 30 crore compared to a loss of 459 crore in the previous quarter. This, according to the bank, was due to an increase in provisions for the June quarter.

Beyond profits, RBL Bank’s fundamentals remain solid. Its liquidity coverage rate is 155%, compared to 100% mandated by the RBI. This means that in the short term, the bank has sufficient liquidity to meet its obligations.

RBL Bank’s credit card business – which accounts for 22% of the company’s total loan portfolio – has been a rapidly growing segment for the company. In fact, brokerage firm B&K Research recently claimed that RBL’s credit card business is doing better than SBI Card, the nation’s second-largest credit card issuer.

However, investors should keep in mind that this is still a small player with a 4% market share of the number of cards issued ⁠ – even though it only grew by 1% in 2017 ⁠ – is far behind the 19% of SBI Card. market share.

How can the RBI appoint directors to the board of directors of a private bank?

RBI has in the past appointed additional directors to the boards of banks such as Yes Bank, Dhanlaxmi Bank, Ujjivan Small Finance Bank, among others.

Pursuant to Section 36AB of the Banking Regulation Act 1949, the RBI may appoint additional directors to protect the interests of the bank, its depositors, banking regulations, or the general public interest.

Update: Rakesh Jhunjhunwala has now
refuse reports on the acquisition of a stake in RBL Bank.

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