RBL Bank shares trade lower for fourth straight day post QIP issue

Shares of RBL Bank were trading lower for the fourth straight day, down 3 per cent at Rs 326 in the intra-day trade on Tuesday on profit-booking after the private sector lender raised more than Rs 2,000 crore through qualified institutional placement (QIP). The stock has fallen below its QIP issue price of Rs 351 per share on the BSE.

In the past four trading days, RBL Bank has underperformed the market by falling 13 per cent on asset quality concerns. In comparison, the S&P BSE Sensex has slipped 1 per cent during the period.

Prior to QIP issue, the stock of RBL Bank had rallied 51 per cent from Rs 252 on October 24 to Rs 381 on November 28. The benchmark index was up 4 per cent during the same period.

On Friday, December 6, RBL Bank announced that it had successfully concluded the QIP of Rs 2,025 crore at the issue price of Rs 351 per share (including premium of Rs 341) pursuant to the allotment of 57.7 million equity shares.

The QIP increases the Bank’s total capital adequacy ratio to 15.3 per cent, core equity tier I ratio to 14.3 per cent, enabling the bank to remain capitalized well above the regulatory limits. This is likely to provide some breather amid the bank’s planned accelerated non-performing assets (NPA) recognition from its announced corporate stress pool and rising systemic stress.

“RBL has done heavy lifting in terms of NPA recognition from the corporate stress pool in Q1 leading to a sharp rise in the GNPA ratio to 2.6 per cent (up 140bps qoq), while the residual stress pool (Rs 1,000 crore, 1.7 per cent of loans including CCD/media group) should be largely recognized/resolved resolution in H2,” according to analysts at Emkay Global Financial Services.

"However, given the rising systemic corporate stress, we believe that the bank’s corporate stress pool will remain dynamic. We conservatively factor in higher NPAs, while the bank’s stated plan to improve its current PCR of 41 per cent gradually to 60 per cent will keep loan loss provision (LLP) elevated, dragging down its RoA to 0.9 per cent in FY20E, down from 1.2 per cent in FY19," the brokerage firm said in a company update.

The recent capital infusion at a better-than-expected price, which we believe is positive. It has improved the bank’s shock absorption capacity. However, we believe that near-term stock movement will largely track the bank’s asset-quality performance amid rising corporate stress and RoA trajectory.