RBL Bank stock falls 12% as asset quality, growth woes keep Street cautious

Stock has fallen 50% since July 12, further downside not ruled out

The RBL Bank stock fell over 12 per cent to end Wednesday’s trade as a top loser among frontline stocks in the BSE, also its third fall in over a month. At Rs 313.65 apiece, the stock is marginally over its listing day closing price of about Rs 300.

A combination of factors —incremental worries on the asset quality front from new names, sale of employee stock options (ESOPs), and YES Bank’s rating downgrade — sparked a fear of contagion in the system to weigh on the stock. 

The bank, however, has clarified that ESOP selling was a routine activity. “No management committee member, including key managerial personal, have sold any shares on July 30, 2019, and thereafter,” the bank clarified.

Doubts over the bank’s asset quality resurfaced following its Q1 results announcement. The bank accepted that gross non-performing assets (NPA) ratio could be 2.0–2.5 per cent in FY20 (well above its historical levels), which investors have not taken kindly to.

What has soured sentiment is fresh asset quality trouble, which, analysts say, could cause the bank to miss out on its asset quality guidance. Analysts have pegged the same at Rs 300-500 crore, though the quantum hasn’t been confirmed by the bank.

With asset quality issues at the centre of attention, growth guidance has been reduced to 20-25 per cent, from the earlier 30-35 per cent. 

Much of the lowering (of guidance) is on account of the decision to go slow on wholesale or corporate loan book — the run rate of which may reduce from 28 per cent in Q1 to 10 per cent for till the end of FY20.

The bank, though, maintains its optimism on retail loans. “The bank’s incremental focus will be on re-orienting its portfolio towards retail, and managing asset quality instead of growth, given the recent stress in its wholesale portfolio,” say analysts at Emkay Global Financial Services.

With the bank facing challenges on two critical parameters — asset quality and growth — for the first time since listing in 2016, it needs to be seen how much capital the bank can raise in the next 12-18 months, and at what pace.

“In a situation of uncertainty in the system, we are in no hurry to raise capital, and at 12.4 per cent capital, we are comfortably placed for the next 3-4 quarter,” explains Rajeev Ahuja, executive director of RBL Bank. The bank has received an approval to raise over Rs 3,000 crore of capital.

With RBL Bank facing near-term pressure and the stock melting over 50 per cent since July 12 — when trouble first started hitting the bank — analysts don’t rule out further downside risk.

While the Street hasn’t turned all negative yet, being cautious on the counter may be a prudent approach.