RBL Bank crashes 20% intra-day: What's weighing on the stock?

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RBL bank

RBL Bank share price: RBL Bank Share price crashed 20% on Monday morning following the developments over the weekend. The RBL share price was at 139.10 in the early hours of the trading session. The current levels are 50% lower from the 52-week high of Rs 274.30 per share. However, the share price recovered after the RBI allayed fears with respect to the financial position of the bank. Here are the major highlights: 

RBL Bank news: The story before the weekend

  • Vishwavir Ahuja was the MD and CEO of the bank.
  • He received board approval for reappointment as MD and CEO for another three years. However, the RBI cleared only a one-year extension early this year.
  • His term was set to end in June 2022, so he had a tenure of 6 months remaining.
  • In recent months, reports suggested that some employees of RBL bank sought the finance ministry's support to oversee operations. 
  • These employees believed regulatory frameworks were being ignored by the bank's top management.

RBL Bank news: What happened over the weekend?

  • Managing Director and Chief Executive Officer Vishwavir Ahuja decided to go on leave with immediate effect. The Board also approved the same.
  • Executive Director Rajeev Ahuja will take over as interim MD and CEO.
  • On 25th December, RBI appointed chief general manager Yogesh Dayal, currently in charge of communications at the central bank, as an additional director on RBL Bank’s board for two years or until further orders.
  • The intervention of RBI is a surprise to most as RBI only intervenes in the functioning of weak banks like Ujjavan, Dhanlaxmi, LVB, J&K Bank.
  • The newly appointed MD and CEO told the reports on Sunday that the bank does not anticipate major capital needs in the short term, countering fears of problems in management.
  • He also added that the December-quarter performance is expected to be better than the preceding three months.

RBL Bank share: Buzz around Rakesh Jhunjhunwala investing in the bank

  • Late Sunday evening, there was news that ace investor Rakesh Jhunhunwala and D-Mart founder RK Damani have approached the RBI with a request to buy a 10% stake in RBL bank.
  • On Monday morning, Jhunjhunwala denied any interest in buying a stake in the lender to CNBC-TV18. There is no update from Damani on the same.

RBL Bank financials

  • The bank's financials are not in the best of health. In the latest Jul-Sep 21 period, the bank reported a 77% drop in net profit to Rs 31 crore.
  • The bank's gross NPA ratio in Jul-Sep 21 period, rose to 5.4% from 3.34% in the last year. The bank has a net NPA ratio of 2.14%, credit deposit ratio of 74.1%, and a leverage ratio of 10.0% for the quarter ended September 30, 2021. 
  • The bank is doing fine in terms of capital adequacy (16.3%) and liquidity coverage ratio (155%).

RBL Bank share price news: The stock price recovered mid-afternoon, after the RBI allayed concerns around RBL's financial position. Here what RBI has said in a statement: 

  • There has been speculation relating to the RBL Bank Ltd. in certain quarters which appears to be arising from recent events surrounding the bank. We would like to state that the bank is well capitalised and the financial position of the bank remains satisfactory.
  • As such, there is no need for depositors and other stakeholders to react to the speculative reports. The bank’s financial health remains stable.

What should investors do?

While the intervention of RBI and the CEO leaving the bank before the tenure definitely raises some questions on the bank's functioning, the clarification from the central bank does allay concerns. Hence, investors should avoid any knee-jerk panic selling. Investors should carefully monitor the developments in the bank and analyze the Q3 results diligently. Below is what different brokerages rating for the RBL Bank -

Motilal Oswal - The brokerage house said that the current developments have raised concerns about the bank's ability to sustain a turnaround in its operating performance. They have put the rating under review and remain watchful of further developments and await further clarity in the 3QFY22 result.

CLSA - It said that the next 6 months will be key in validating the management’s reiteration of its performance. They maintained an "outperform" rating and cut the target to Rs 200 from Rs 230 per share.

ICICI Securities - Downgrade the rating to "sell" and cut the target price to Rs 131 from Rs 181.