In the final week preceding the New Year, there is new worry about the health of a bank. After Yes Bank, Lakshmi Vilas Bank (Now with DBS) and Punjab and Maharashtra Co-operative (PMC) Bank, RBL Bank is getting the regulator's emergency attention. 

We do not know yet the nature of the wound but there could be challenges on the bank retaining its existing customers and new fundraisings unless things settle down pretty fast. RBL Bank interim CEO Rajeev Ahuja, though, has clarified that the Reserve Bank of India (RBI) does not have questions about the long-term sustainability of the bank. 

There are two developments that indicate that the bank is in some sort of trouble, be it short-term. The RBI appointed its nominee, Yogesh Dayal, to the RBL board for a period of two years while Rajeev is now the interim head after the bank’s longtime managing director and CEO Vishwavir Ahuja stepped aside and proceeded on leave. 

Nothing though has been specified on whether these events relate to the bank’s financial strength and asset quality. What prompted the RBI to act at the time of Christmas and arrival of New Year is speculative at this stage.   

The appointment of RBI’s nominee on RBL Bank’s board has nothing to do with the lender’s financials, Rajeev told reporters on Sunday. Analysts, however, wanted more clarity on several issues including why Vishwavir left suddenly on medical leave six months before the end of his tenure and what was the need of the RBI appointing an administrator on the board of RBL Bank.

The recent developments are not on account of any advances, asset quality or related to the bank’s financial performance, Rajeev clarified. After challenges due to Covid-19 and the second wave of the virus, the bank has recovered its business momentum. The performance improved in Q2 and the December quarter is expected to be even better. The bank should return to its pre-pandemic performance in the March quarter, he added.

The bank’s cost of credit is “expected to normalise very quickly”. Slippages peaked in Q2 and the bank’s net NPA (non-performing asset) ratio is expected to go below 2% (from 2.14% in Q2) over the next 3-4 months. Collections and new business generation should see a tremendous improvement, he added.

Rajeev said that the bank is well capitalised and does not anticipate major capital needs in the short term. “Based on my conversation with RBI, it is of the view that the bank is making progress financially and more needs to be done on risk management, compliance.” 

Rajeev also stated that the “RBI is fully behind the bank, the board and me”. 

The intention of the RBI to appoint its nominee was to provide overall strength to the RBL Bank’s board and to continue the improvement of processes and compliance undertaken for the last six to eight quarters, he added. 

In September, the RBI had slapped a Rs 2-crore penalty on RBL Bank for violating norms and opening five savings accounts in the name of a co-operative bank. The private lender had also not followed RBI norms relating to the composition of the board of directors.  

Meanwhile, the All India Bank Employees Association (AIBEA) has expressed concern about the developments at RBL Bank and said that the government should consider merging it with a state-owned bank while protecting the interests of depositors. 

In a letter to Finance Minister Nirmala Sitharaman, the umbrella body of the bank employee unions has expressed fears that RBL could be going the Yes Bank and Lakshmi Vilas Bank way.    

"We are worried and concerned about the developments that are taking place in the affairs of RBL Bank Ltd. The sequence of events leading to the sudden exit of Vishwavir Ahuja along with induction of Dayal from RBI on the board as an additional member indicates that everything is not ok with the bank," AIBEA said in its letter to the Finance Minister.

RBL’s total advances have doubled in the last few years. From about Rs 29,000 crores in 2017, advances have crossed Rs 58,000 crore now, AIBEA said.

The bank’s gross NPAs have swelled from only Rs 357 crore in 2017 to more than Rs 2,600 crore. Its operating profit has increased, but the bulk of it has been adjusted towards provision for bad loans. RBL’s net profit is very meagre, said AIBEA general secretary C H Venkatachalam.

There are also reports that RBL has been over indulging in retail credit, micro-financing and credit cards and consequently has burnt its finger resulting in weakening the financials, AIBEA said.