As RBL Bank shares slump, here’s what went wrong and what analysts suggest


by 5paisa Research Team Last Updated: Dec 27, 2021, 03:55 PM IST

RBL Bank Ltd tanked as much as 20% on Monday, a day after the company informed the stock exchanges of the sudden departure of managing director and chief executive officer Vishwavir Ahuja.

Shares of RBL Bank closed at Rs 141.75 apiece on the BSE on Monday, down 17.83% from the previous close. The stock touched its 20% lower price limit for the day at Rs 132.35.

More than 190 million shares exchanged hands on the BSE and NSE, compared with a daily average volume of 7.4 million shares for the past one month on both the exchanges.

So, what exactly happened at RBL Bank?

In a sudden and shocking move, the board at RBL Bank appointed Rajeev Ahuja as interim MD and CEO with immediate effect to replace Vishwavir Ahuja, who was allowed to go on “medical leave” with immediate effect.

The Reserve Bank of India (RBI) also intervened by appointing its chief general manager Yogesh K. Dayal as an additional director on the board.

RBL Bank assured its shareholders stating it was well-positioned to execute its business plan and strategy as communicated during the earnings call in late October.

Financial position of the bank remains robust with a healthy capital adequacy ratio of 16.3%, and its business and financial trajectory continues to be on an improving trend after absorbing the challenges due to Covid-19 pandemic, the bank added.

Contra view on the Street

While the bank and the banking regulator have tried to soothe investors' nerves, there is a contrarian view building on the Street that things may not be fine at RBL Bank and it may be heading in the same direction as Yes Bank and Lakshmi Vilas Bank.

The All India Bank Employees Association (AIBEA), an association of bank employees across the country, expressed concerns to the finance ministry and sought intervention and even merge RBL with a public-sector bank.

“We are worried and concerned about the developments that are taking place in the affairs of RBL Bank Ltd, the Kolhapur-based private bank.” said AIBEA in a letter to the FM.

“The sequence of events leading to the sudden exit of Vishwavir Ahuja along with the induction of Dayal from RBI on the board as additional member indicates that everything is not okay with the bank,” the statement read.

Vishwavir Ahuja, who had been at the helm for more than a decade, had received the board’s approval to continue in his position, but the RBI agreed only for a short term up to 2022, the AIBEA said.

Share price takes a beating

Investors, spooked with the sudden resignation of the bank chief, dumped RBL shares on Monday. The stock touched its lowest in nearly one-and-a-half years, since June 2020.

The move also caused many brokerages and stock advisory firms to either suspend or downgrade their earlier recommendations.

Rating and recommendations

Kotak Institutional Equities suspended its rating on the stock citing uncertainty over affairs taking place at RBL Bank. The brokerage said it would continue to monitor the liquidity, asset quality, changes to business strategy, execution by the current interim MD and possible exits of the senior management.

“In the past few years, we have seen this in YES Bank, J&K Bank, Ujjivan SFB, Lakshmi Vilas Bank and now with RBL Bank. After the call with the management yesterday, we are uncertain of the developments that took place and caused RBI to place a director in the bank,” said Kotak.

Sandip Sabharwal of asksandipsabharwal.com advised investors to stay away from the stock as CEO changes, even in PSU banks, tend to bring out some skeletons.

“Once some sort of trouble starts in the financial space, it takes a long time to resolve it, irrespective of what the management says. I would strongly advise retail investors that if you are trying to buy the fall or do anything in this stock, you are just punting because there will be a lot of unavailable information that will come out subsequently," Sabharwal said.

ICICI Securities, Nirmal Bang Securities and Motilal Oswal Financial Services downgraded the stock to ‘sell’, while Investec changed its rating to ‘under review’.

"With anticipated elevated stress and muted growth, we were of the view that modest RoA/RoE profile will cap valuations. This incremental adverse development will further weigh interim pressure and can drag valuations to as low as 0.55 times FY23e book,” said ICICI Securities. “We, therefore, downgrade it to sell with a revised target price of Rs 130 against Rs 181 earlier.”

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SENSEX
52,973.84
180.22 (0.34%)
Nifty 50
15,842.30
60.15 (0.38%)
Nifty Bank
33,597.60
476.25 (1.44%)

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