RBL Bank shares see record drop of 25% after RBI appoints director to its board

The stock tumbled to its lowest level since listing in 2016 after Yogesh Dayal, a career central banker, was appointed by the Reserve Bank of India for a period of two years from 24 December.

File Photo of RBL Bank | Commons

Mumbai: RBL Bank Ltd. plunged by a record 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 tumbled as much as 25% in Mumbai on Monday, the biggest decline since listing in 2016. Yogesh Dayal, a career central banker, was appointed to RBL’s board by the Reserve Bank of India for two years from Dec. 24. 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 RBI’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.

The changes “may have reflected some delay in implementation of certain RBI guidelines, as well as increased risk on the balance sheet in recent years — including a sharp increase in unsecured loans,” Morgan Stanley analysts including Sumeet Kariwala wrote in a note.

RBL’s shares are now down about 40% this year, trimming the lender’s market value to 83 billion rupees ($1.1 billion). That compares with about 8 trillion rupees for HDFC Bank Ltd., India’s most-valuable lender. RBL in October reported quarterly net income of 308 million rupees, down 79% from a year earlier.

The RBI had previously appointed its officials as directors on the boards of Yes Bank Ltd., Dhanlaxmi Bank Ltd. and several other private lenders where it saw some signs of “weakness,” Anand Dama, an analyst at Emkay Global Financial Services Ltd., 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. –Bloomberg