Mumbai : Reserve Bank of India (RBI) by R. Shares of RBL Bank fell over 22% on Monday after the approval of the appointment of Subramaniakumar as Managing Director (MD) and Chief Executive Officer (CEO).
Subramaniakumar’s appointment comes after the unexpected resignation of former MD and CEO Vishwavir Ahuja.
Most analysts downgraded the stock after the appointment of Kumar, a former public sector banker who was involved in reviving Indian Overseas Bank and Dewan Housing Finance Corp Ltd (DHFL), which had poor asset quality.
“He is an ex-PSU banker and, historically, such appointments in financial institutions have been linked to weak asset quality and/or governance structures. Therefore, the appointment of the CEO raises questions including the continuity of the current top leadership in the bank. While we believe that asset quality is not an issue, this position could have a potentially debilitating effect on liabilities and, therefore, adversely affect the performance and growth trajectory of the bank.
In the interim, the central bank had appointed a nominee director on the board of the private sector lender. The board had recommended two names, which according to media reports included Zareen Daruwala, CEO of Standard Chartered Bank.
“The market was expecting an appointment that would take the bank to the next level of growth. However, the final appointment appears to be an RBI directive to steer the bank in a pre-determined direction. Subramaniakumar to be the DHFL liquidator. Former credentials haven’t helped matters much,” according to the CEO of a brokerage firm, who spoke on condition of anonymity.
Analysts expect the stock to remain under pressure in the near term based on new management’s business strategy, employee retention measures and recovery in return ratio.
“We believe that his selection by RBL and relatively faster approval by the central bank indicates the blessings of RBI throughout the process to bring stability and credibility to the bank. We believe that the priority of the new MD lies in the quality of the portfolio. Reforms, strengthen compliance and risk management framework and stabilize the bank. That said, there could be a potential risk along with some asset-quality clean-up (if required) and mid-level management,” said Emkay Global, which shifted the stock from ‘buy’ to ‘hold’ with a target. less than price from 140 110.
Meanwhile, Kumar tried to address the concerns by holding a meeting with 30-40 senior managers on Monday.
Kumar, whose appointment was approved over the weekend, wrote an email to RBL Bank employees, clarifying that the main focus would be on development.
“The bank, with its strong financials and well-capitalized balance sheet, offers everyone a good opportunity to grow,” he said in the email.
“After successfully scripting RBL 1.0, we all come together to script RBL 2.0, keeping in mind the bank’s high standards of service delivery.” Mint has seen a copy of the email.