December 27, 2021 1:23:03 pm
Shares of private lender RBL Bank today opened at a lower circuit and plunged as much as 23 per cent with heavy volumes in morning trades.
The trigger for this has been the Reserve Bank of India on Friday appointing Yogesh K Dayal, Chief General Manager, RBI, as an Additional Director on the board of the bank for a period of two years till December 23, 2023 or till further orders, whichever is earlier.
This was followed by the lender’s MD and CEO Vishwavir Ahuja going on leave six months ahead of the end of his tenure. The bank’s board has appointed Rajeev Ahuja, currently the Executive Director, as interim MD & CEO of the bank with immediate effect.
What’s the issue?
The RBI has appointed an additional director on the bank’s board using powers under Section 36 AB of the Banking Regulation Act, 1949. This Section states that “if the Reserve Bank is of opinion that in the interest of banking policy or in the public interest or in the interests of the banking company or its depositors it is necessary so to do, it may, from time to time by order in writing, appoint, with effect from such date as may be specified in the order, one or more persons to hold office as additional directors of the banking company.”
The banking regulator appointing directors using this provision is perceived as negative by the markets and stakeholders as its points towards concerns and issues that could affect the depositors safety and possibly the lender’s solvency. The other way to look at it would be that the regulator is being proactive in preventing any possible issues that may arise in the functioning of the bank.
What’s the impact?
The stock of RBL Bank (earlier known as Ratnakar Bank) crashing on Monday highlights the perceived risks in the lender. While the bank’s new head Rajeev Ahuja on Sunday claimed that the bank and its management have the full support of the RBI, bank unions expressed concerns. “In the background of the problems encountered by private Banks like Yes Bank and Lakshmi Vilas Bank last year, we urge upon you to immediately intervene in the matter in the interest of the depositors of this private sector bank and consider necessary steps including merger of this bank with a public sector bank,” CH Venkatachalam, General Secretary, All India Bank Employees Association (AIBEA) said in a letter to the Finance Ministry. Allaying the concerns, Ahuja said: “These developments are not on account of any concern on advances, asset quality and deposits level of the bank. We want to allay any concerns any of you may have in this regard. The bank has the full support of the RBI.”
How are the bank’s financials?
The operating profit of the bank has been increasing in the recent years, but the bulk of these earned profits have been adjusted towards provision for bad loans and with the result the net profit has remained very meagre. The bank had a deposit base of Rs 75,588 crore in the quarter ended September 2021 and advances of Rs 58,046 crore. The bank’s gross non-performing assets rose to Rs 3,130.93 crore or 5.4 per cent of gross advances as on September 30, 2021 from 3.34 per cent a year ago.
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RBL Bank said the financials of the bank remain robust with healthy capital adequacy of 16.3 per cent, high levels of liquidity as reflected through liquidity coverage ratio of 155 per cent, stable net NPA of 2.14 per cent and leverage ratio of 10.0 per cent, for the quarter ended September 30, 2021. The bank’s net profit fell to Rs 31 crore in the quarter ended September 2021 from Rs 144 crore a year ago largely due to a 5 per cent shrinkage in retail loans and also hit by a reversal in interest income from segments like microfinance. The RBI had imposed a fine of Rs 2 crore on RBL Bank for flouting board composition norms and rules related to the opening of bank accounts earlier this year.
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