RBL Bank Tumbles after India appoints director to board

[MUMBAI] RBL Bank shares plunged after a decision by India's central bank to appoint a new director to the board raised concerns about the outlook for the small private-sector lender.

The stock dropped as much as 25 per cent in Mumbai on Monday, the biggest decline since listing in 2016. It later pared the retreat to about 13 per cent as of 1.15 pm local time after the Reserve Bank of India said the lender's financial health "remains stable."

The RBI appointed Yogesh Dayal, a career central banker, to RBL's board for two years on the weekend. Meanwhile, Rajeev Ahuja was elevated as the interim managing director and chief executive officer of the bank, succeeding Vishwavir Ahuja who went on medical leave.

The central bank's action comes as RBL grapples with a surge in soured loans to consumers during the pandemic, prompting the lender to boost provisions that led to a first-quarter loss. The bank returned to profit in the quarter ended Sept 30, and Rajeev Ahuja said on the weekend that the RBI's move wasn't motivated by worries over asset quality and deposit levels. RBL is well capitalised and its financial position "remains satisfactory," the central bank said in a statement on Monday.

The firm has maintained a "comfortable" capital adequacy ratio of 16.33 per cent and a provision coverage ratio of 76.6 per cent, the RBI said.

Shares of RBL are now down about 35 per cent this year, trimming the lender's market value to US$1.2 billion. That compares with about 8 trillion rupees for HDFC Bank (S$144.8 billion), India's most-valuable lender. RBL in October reported quarterly net income of 308 million rupees, down 79 per cent from a year earlier.

The RBI said it appoints additional directors at private-sector banks when it's felt that the board needs closer support in regulatory or supervisory matters. India's central bank has taken similar steps at other lenders, such as Yes Bank and Dhanlaxmi Bank, when it saw signs of "weakness," Anand Dama, an analyst at Emkay Global Financial Services, wrote in a note on Saturday.

Dayal's appointment will be taken adversely by investors, keeping the stock under pressure, while the management changes add to uncertainty, Dama said.

RBL, founded in the 1940s, has witnessed a steady deterioration in its asset quality in the past two to three years. It started off with a sudden surge in non-performing loans to companies and was followed by soured credit card and micro-finance debts during the Covid-19 outbreak, Dama said.

The bank intends to recover further in the next few quarters, said interim CEO Ahuja, who is no relation to his predecessor.

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