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RBL Bank Down 20% as Vishwavir Ahuja takes a leave of absence; analysts advise caution

Vishwavir Ahuja, RBL Bank’s Managing Director and Chief Executive Officer, has gone on leave with immediate effect, the bank announced on Saturday.

After the bank announced 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, shares of RBL Bank hit a 52-week low of Rs 138, slipping as much as 20% in intraday trade on Monday.

The stock is traded in the F&O (futures and options) segment, which has no circuit limits.

RBL Bank fell below its previous low of Rs 155.65 on the bourses on Monday. On the NSE and BSE, a total of 1.9 million equity shares had changed hands. On April 22, 2020, it hit a record low of Rs 101.60.

Analysts believe the recent development will create uncertainty and be negative for the stock, at least in the short-to-medium term. They believe the December 2021 quarter results will be critical in restoring investor confidence in the bank and its stock.

“In the short term, the RBI’s action will create uncertainty and have a negative impact on the bank’s multiples. We believe that, with such a transition, banks that have received permission from the RBI should provide more solid justifications for the regulator’s actions, as minority investors are important stakeholders. Its 2HFY22 results will be crucial in establishing stability and comfort “CLSA analysts said in a note.

Meanwhile, RBL Bank sought to assuage fears by stating that it is well positioned to carry out its business plan and strategy in the future.

RBL Bank Down 20%
RBL Bank Down 20%

Due to continued slower growth, margin contraction, and elevated provisions, the bank reported sub-par profitability of Rs 30 crore in the July-September quarter (Q2FY22). The GNPA ratio increased by 41 basis points qoq due to increased stress in MFI/Cards, while RSA increased by 155 basis points to 3.4 percent.

“Slippages in asset quality remain high, while secured business loans and the micro banking portfolio led the increase in restructured book. Current events have raised concerns about the bank’s ability to maintain a turnaround in its operating performance, while also raising fears that the regulator will take similar actions against other mid-size banks with sub-optimal operating performance “In a report, analysts at Motilal Oswal Securities wrote:

Vishwavir Ahuja’s term extension was approved by the RBI in 2021 for a one-year period beginning June 21. (against three-year extension request by the board). In September 2021, the board of directors/shareholders unanimously approved his reappointment for a three-year term beginning June 22.

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It is not new for the RBI to investigate such cases. Due to concerns about asset quality, inability to raise capital, weak operating performance/metrics, and to strengthen the board and corporate governance, it previously appointed an additional director to the boards of Jammu & Kashmir Bank, Yes Bank, Dhanlaxmi Bank, and Ujjivan Small Finance Bank.

It has taken a proactive approach to asset quality and corporate governance issues, and has recently superseded the boards of several NBFCs, including SREI Infra, Reliance Capital, and DHFL, before initiating the insolvency process.

“The developments do not appear to have pleased RBI, which had predicted a succession. Also, it was unclear whether Mr Ahuja was still a part of the organisation. The RBI has expressed its displeasure with the bank’s strategy of holding a large share of risky assets. Furthermore, there were expectations of RBI succession or change “In a note co-authored with Arjun Bagga and Akshay Gupta, Mona Khetan, vice-president of research at Dolat Capital, wrote:

RBL has underperformed the market in the last month, falling 21% versus a 2.4 percent drop in the S&P BSE Sensex. The stock fell 36% in a year, compared to a 21% rise in the benchmark index.

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Those at Emkay Global believe that in order to reassure investors, more explanation from management will be required to justify Vishwavir Ahuja’s abrupt departure nearly six months before his term ends (June’22) and the RBI’s intervention (typically seen in weak banks like Ujjivan, Dhanlaxmi, LVB, J&K Bank).

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“The plot will develop over time. However, the appointment of Mr. Rajeev Ahuja as interim MD & CEO, as well as the company’s healthy liquidity buffers/capital ratios (Tier I at 15.5 percent) and management’s strategic intent to shift the portfolio mix toward secured assets, provide some comfort. However, business/asset quality dislocation in the short/medium term is unavoidable “In a recent note, Emkay’s Anand Dama wrote.

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