Change is the only constant. But it can also be disruptive. And nobody knows this better right now than RBL Bank.
The bank's stock fell 23% on Monday, witnessing the steepest intraday decline in its history.Â
Wondering what caused this?
One exit.
The bank's managing director and CEO Vishwavir Ahuja abruptly went on medical leave just six months before his tenure was set to be over.
But why did one exit spook investors?
Psst… Before we proceed with the story, we have other news for you. We just launched a calendar to make your 2022 more colourful and hopeful.
The Domino Effect
Ahuja has been associated with the RBL Bank since even before it became the RBL Bank. It was Ahuja who rebranded Ratnakar Bank into RBL. He leveraged tech to take this small bank to the position it is now in. Under him, the bank's net profit grew from Rs. 12 crores in 2010-11 to Rs. 508 crores in 2020-21.Â
So, you can see why investors were upset after he left.Â
But it was not just this exit that upset them. It was what happened due to this exit that scared them even more.
The bank not only appointed an interim chief to replace Ahuja but the RBI also stepped in. The regulator appointed its Chief General Manager Yogesh K. Dayal as an additional director on the bank’s board.
What business did RBI have, appointing a director of its own?Â
The move showed that the RBI wants to keep a close watch on the bank's financial position. Which means things are not going well at the bank, right?
The customers and investors of RBL also thought the same. Because RBI doesn't usually appoint directors to a bank's board. So far, it has only done this in the case of Yes Bank, Lakshmi Vilas Bank, J&K Bank, basically, banks that were in massive debts and trouble.
Nonetheless, both RBL and RBI have assured customers and investors that there is nothing that they have to worry about and the bank's financial condition is good.
But is there merit in this statement?
Well, the bank's non-performing assets (NPA) or bad debts have been steadily increasing. Its gross NPA rose to Rs. 3,130 crores in September 2021 from Rs. 1,911 crores in September 2020. Meanwhile, its profit has declined by 77% since last year.
But all hope is not lost. The bank has a Provision Coverage Ratio of 76.6%, which means it has funds to cover any losses from bad debts. This lowers its chances of going completely bankrupt. It also has excess liquidity of Rs. 15,000 crores to deal with sudden withdrawals from customers.Â
Okay, so the bank's not doing good but that's the condition of many banks due to Covid. Also, the extra funds should give customers some solace no? So, why the panic?
It is being fuelled by many other headlines that are now circulating about the bank.
Some days back it was reported that business magnates Rakesh Jhunjhunwala and RK Damani were ready to buy a 10% stake in RBL Bank.Â
But Jhunjhunwala denied this rumour.Â
This turnaround has made investors warier about the bank.
Adding fuel to the fire, a report by Edelweiss Alternate Research suggests that the bank will be removed from Nifty's Bank Index in March. Bank of Baroda is projected to replace it.
And that’s not all. All India Bank Employees Association also wrote a letter to the Finance Minister stating that all was not right at the bank and the government should consider merging it with a public sector bank.
So, is this the beginning of the end for the bank?
Not really, there's always a ray of hope.
Prompted by the stock's low price and their faith in the bank, some investors purchased its stock again. So, its stock rose on Tuesday by 3.6%.
What does the future hold for RBL Bank?
Only time will tell...
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