RBL Bank’s financial health stable: RBI

The Reserve Bank of India (RBI) on Monday observed RBL Bank was well-capitalised and said the lender’s financial position is ‘satisfactory’. The central bank clarified the appointment of its executive Yogesh Dayal to the board of the private sector lender saying appointments of additional directors in private banks are undertaken under Section 36AB of the Banking Regulation Act, as and when it is felt the board needs closer support in regulatory or supervisory matters.

The RBL Bank stock crashed 18% on Monday after developments over the weekend that saw the appointment of a central bank executive to its board and the sudden departure of CEO and MD Vishwavir Ahuja, six months ahead of the completion of his term.

Analysts expressed their dissatisfaction with the degree of disclosures from the bank after the interim chief executive held a call on Sunday to reassure investors about recent developments.

Kotak Institutional Equities (KIE) moved its rating to rating suspended (RS), saying it would need to monitor RBL Bank’s liquidity, asset quality, changes to business strategy and execution by the current interim leadership or a new executive who would lead at a later point and possible exits of senior management.

Over the next month, the broking firm intends to monitor if there is any spillover effect on the deposit franchise. Thereafter, it will need at least two sets of quarterly results before it can assess the impact on asset quality, assuming there is no further Covid wave that disrupts business on the ground. KIE will also be watchful of changes in the loan mix, given the riskiness of certain asset products, which the interim management referred to on Sunday.

Analysts at Emkay Global Financial Services said in a note that in order to comfort investors, more explanation will be required from the management to justify the sudden exit of Ahuja and the RBI’s intervention, the kind of which has earlier been seen in weak banks like Ujjivan Small Finance Bank, Dhanlaxmi Bank, Lakshmi Vilas Bank and Jammu & Kashmir Bank.

They felt the RBI’s discomfort with the unsecured heavy asset-side construct MFI (microfinance) and cards at 31% creating asset quality risks as seen during Covid-19 and poor compliance with its directives (about risk management/governance/succession) could have possibly led to its swift intervention, apart from ensuring a smooth management transition and comforting the stakeholders.

ICICI Securities downgraded its rating on the bank’s shares to ‘sell’ from ‘hold’, stating that uncertainty around the recent developments has only intensified with the management’s statement that the events have nothing to do with the bank’s business fundamentals. “RBI’s similar action at other banks in the past has hinted at compliance or asset quality or governance or business risk issues. Repercussion of this move on various stakeholders (including depositors, employees, etc) and consequent derailment of confidence and disruption would be key monitorable going forward,” the brokerage wrote on Monday.

from Banking & Finance – The Financial Express https://ift.tt/32snrfy