private lender’s shares RBL Bank Limited Following a surprise intervention by the Reserve Bank of India (RBI), the National Stock Exchange fell 20% in early deals on Monday, hitting a 52-week low. In an unexpected move, the central bank has appointed its Chief General Manager Yogesh Dayal as an additional director in RBL Bank for a period of two years with effect from December 24, 2021. This comes in the backdrop of Vishwavir Ahuja, managing director and chief executive officer of RBL Bank. Those whose tenure was till June 2022, were suddenly going on leave.
In a conference call with analysts, which was conducted after the RBI’s decision, the RBL management could provide only limited clarity on appointing Dayal as an additional director on its board. Furthermore, Ahuja’s exit from the bank was cited as his personal decision. The management said a formal committee would come up with potential candidates and submit it to the RBI so that Ahuja’s successor could be decided. However, no timeline was shared.
It is, therefore, no surprise that analysts have also become cautious about the stock of RBL Bank. While management has assured analysts that its financials remain strong, the sharp fall in the share price clearly indicates that investor sentiment for the stock has soured.
Analysts at Emkay Global Financial Services Ltd feel that near/medium term business/asset quality dislocation is inevitable for RBL Bank. Hence, the domestic brokerage house has cut its earnings estimates by 176%/13%/12% for F22/FY23/FY24. It has reduced its target price on the stock from Rs 215 to Rs 165.
Sharing this concern, analysts at Nirmal Bang Institutional Equities said, even if one assumes that the current developments are just noise, it would be better for investors to assume the near-term impact on deposits.
They say that raising growth capital at depressed stock valuations in the short term would be negative for existing stockholders. The Nirmal Bang report said, “Although the management has categorically stated that the worst asset quality is over, we feel that the appointment of the RBI director will cause some panic.”
Meanwhile, history shows that RBI’s intervention could spell trouble for other small-sized private sector lenders as well.
“RBI has exercised its power to appoint its representative on the board of private banks in certain cases, such as J&K Bank (July-19), Yes Bank (March-20), Dhanlaxmi Bank (September-20) ), and Ujjivan SFB (Nov-21). Historically, this was done to address concerns over asset quality/capital or management succession. We believe that the uncertainty arising out of this announcement at RBL Bank is another factor. Small private banks may also be affected. Analysts at Jefferies India Pvt. Ltd. said in a report.
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