RBL Bank tanks 20% as Vishwavir Ahuja goes on leave; analysts sound caution

RBL Bank on Saturday said its Managing Director and Chief Executive Officer Vishwavir Ahuja has proceeded on leave with immediate effect

Shares of RBL Bank hit a 52-week low at Rs 138, slipping as much as 20 per cent in Monday’s intra-day trade, after the bank said over the weekend that Vishwavir Ahuja, its managing director and chief executive officer, had gone on leave and the Reserve Bank of India (RBI) had appointed Yogesh K Dayal as an additional director of the bank.

The stock trades in the futures & option (F&O) segment, which has no circuit limits.On Monday, RBL Bank dipped below its previous low of Rs 155.65 touched on August 24, 2021 at the bourses. A combined 1.9 million equity shares had changed hands on the NSE and BSE. It had hit a record low of Rs 101.60 on April 22, 2020. 

The recent development, analysts, say will create uncertainity and will be negative for the stock - at least in the short-to-medium term. The December 2021 quarter results, they believe, will be key in restoring investor confidence in the bank and its stock.

"The RBI’s action will lead to uncertainty in the near term and will further impact multiples for the bank. We believe that with such a transition, banks with the RBI’s permission should give more solid reasoning for the actions of the regulator as minority investors are important stake holders. Its 2HFY22 results will be key in bringing about stability and comfort," said analysts at CLSA in a note.

Meanwhile, RBL Bank sought to allay concerns and said it is well placed to execute its business plan and strategy going ahead. READ ABOUT IT HERE

In July-September quarter (Q2FY22), the bank had reported sub-par profitability at Rs 30 crore due to continued slower growth, margin contraction and elevated provisions. Asset quality continued to hurt as the GNPA ratio was up by 41bps qoq due to higher stress in MFI/Cards, while RSA was up by 155bps to 3.4 per cent.

"On the asset quality front, slippages remain elevated, while the increase in restructured book was led by the secured business loans and the micro banking portfolio. Current developments have raised concerns about the bank’s ability to sustain a turnaround in its operating performance, while at the same time raising worries of similar actions by the regulator on other mid-size Banks, where the operating performance has been sub-optimal," wrote analysts at Motilal Oswal Securities in a report.

Earlier in 2021, the RBI had cleared Vishwavir Ahuja’s term extension by only one year starting June 21 (against three-year extension request by the board). In September 2021, the board/shareholders unanimously voted in favour of his reappointment for another three-year term starting June-22. 

RBI interveining such cases is not new. In the past, it had appointed an additional director to the boards of Jammu & Kashmir Bank, Yes Bank, Dhanlaxmi Bank, and Ujjivan Small Finance Bank owing to concerns around asset quality, inability to raise capital, weak operating performance/metrics, and to strengthen the board and corporate governance. 

It has been proactive on asset quality and corporate governance issues, and has superseded the board of many NBFCs – SREI Infra, Reliance Capital, and DHFL – in the recent past, before initiating the insolvency process.

"The developments don’t seem to have gone too well with RBI, which had indicated a succession. Also, there was no clarity on whether Mr Ahuja is still part of organisation. It did come out vaguely that bank’s strategy of high share in risky segments has not been taken very positively by the RBI. In addition, there were expectations of succession/change from RBI," wrote Mona Khetan, vice-president of research at Dolat Capital in a co-authored note with Arjun Bagga and Akshay Gupta.

In the past one month, RBL has underperformed the market by falling 21 per cent, as compared to 2.4 per cent decline in the S&P BSE Sensex. In one year, the stock slipped 36 per cent, against 21 per cent rally in the benchmark index.

Those at Emkay Global, too, believe in order to comfort investors, more explanation will be required from management to justify the sudden exit of Vishwavir Ahuja nearly six months before his term ends (Jun'22) and the RBI's intervention (typically seen in weak banks like Ujjivan, Dhanlaxmi, LVB, J&K Bank). 

"The story will unfold in due course. That said, we draw some comfort from the appointment of Mr Rajeev Ahuja as interim MD & CEO, healthy liquidity buffers/capital ratios (Tier I at 15.5%) and management's strategic intent to change the portfolio mix toward secured assets. However, near/medium-term business/asset quality dislocation is inevitable," wrote Anand Dama of Emkay in a recent note.