RBL Bank to seek PE funding amid concerns over financial health: Report

The bank is looking to raise as much as Rs 1,500 crore in 'confidence capital', say sources

RBL Bank Ltd., the Indian lender at the center of turmoil after the nation’s banking regulator appointed a director last month, is seeking to raise new capital in a bid to allay investor concerns over its financial health, according to people familiar with the matter.

The Mumbai-based bank has approached private equity firms for funds in exchange for a stake, the people said, asking not to be identified as the information is private. The bank is looking to raise as much as Rs 1,500 crore ($201 million) in “confidence capital,” one of the people said.

Deliberations are at an early stage and RBL Bank could still decide against the fundraising plan, which may be subject to approvals by the Reserve Bank of India, the people said. 

A spokesperson for RBL Bank denied the plans, saying the lender doesn’t see “any need to raise any equity capital at this stage” and is currently having “no discussions with investors in this regard.”

Shares of RBL Bank plunged to an almost 19-month low late last month after an abrupt decision by the Reserve Bank of India to appoint one of its own career officers to RBL’s board for two years raised doubts about the lender’s asset quality and cash buffers. Adding to the intrigue, the then chief executive officer left on medical leave and was replaced by an executive director.

The central bank has said RBL is well capitalised and its financial position “remains satisfactory” in a bid to reassure investors. The firm has maintained a “comfortable” capital adequacy ratio of 16.33% and a provision coverage ratio of 76.6%, the RBI said. The interim CEO Rajeev Ahuja has said the RBI’s move wasn’t motivated by worries over RBL’s financial health. 

The RBI said it appoints additional directors at private-sector banks when it’s felt that the board needs closer support in regulatory or supervisory matters. 

Nevertheless, the concerns have lingered as RBL grapples with a surge in soured loans in the midst of the pandemic. Though an increase in provisions led to a first-quarter loss, it returned to profit in the subsequent three months ended Sept. 30.

RBL Bank’s shares are down more than 40% in the past year, compared with a gain of about 18% for the S&P BSE Bankex index, a gauge of local banking shares. Brokerage arms of Ambit Capital Ltd. and Housing Development Finance Corp. are among those that cut the target price for the bank shares this month.