Concerned about the possible flight of deposits after the unfolding of dramatic events at RBL Bank, the Reserve Bank of India (RBI) asserted that the private lender’s financial health is stable and it is well-capitalised.

Despite the regulator’s assurances, the RBL Bank stock took a hammering as it crashed 18.32% to close at Rs 140.9 on Monday. Analysts reacted to the Christmas weekend developments saying that adequate disclosures weren’t coming. Several brokerage houses downgraded the stock amid the uncertainty. 

"There is no need for depositors and other stakeholders to react to speculative reports. The bank’s financial health remains stable," the RBI said on Monday.

At the centre of the debate is the reason behind the RBI's appointment of an administrator on the board of RBL Bank. This also coincided with the bank’s longtime managing director and CEO Vishwavir Ahuja suddenly stepping aside and proceeding on medical leave six months before the end of his tenure. The bank’s executive director Rajeev Ahuja was made the interim MD and CEO. And all this happened during the time of Christmas.

The RBI on Monday clarified that appointments of additional directors in private banks are undertaken by the regulator under Section 36AB of the Banking Regulation Act, 1949, as and when it is felt that the board needs closer support in regulatory or supervisory matters. 

The statement came on the backdrop of the central bank appointing its executive Yogesh Dayal to the board of RBL Bank. 

Analysts, however, say the appointments of administrators by the RBI in the past have usually been to support weak banks like in the case of Yes Bank (March 2020), Ujjivan Small Finance Bank (November 2021), Dhanlaxmi Bank (September 2020) and Jammu & Kashmir Bank (July 2019). 

The RBI on Monday expressed satisfaction over the private lender’s financial progress. As per half-yearly audited results, as on September 30, 2021, RBL maintained a comfortable capital adequacy ratio of 16.33% and provision coverage ratio of 76.6%, the central bank said.

The Liquidity Coverage Ratio (LCR) of the bank was 153% as on December 24, 2021, as against the regulatory requirement of 100%, the RBI added. This meant that the bank’s share of high-quality liquid assets set aside to meet its short-term obligations was satisfactory.

A host of brokerage houses, however, have revised their outlook on RBL Bank. ICICI Securities has downgraded its rating on RBL Bank’s shares to ‘sell’ from ‘hold’ while stating that uncertainty looms at the bank.

“RBI’s similar action at other banks in the past has hinted at compliance or asset quality or governance or business risk issues. Repercussion of this move on various stakeholders (including depositors, employees, etc) and consequent derailment of confidence and disruption would be key monitorable going forward,” the brokerage wrote on Monday. 

“By having additional director on the board of RBL Bank, we believe RBI wants to be more supervisory and track the bank’s progress closely on succession planning as well as business performance,” the note added.

On the RBL Bank management’s guidance path, ICICI Securities said that strategy and performance need to be closely monitored. “RBL’s Q2FY22 performance lagged peers on most operating metrics: slippages of 8.6%, GNPAs (gross non-performing assets) up 40bps to 5.4%, credit cost at 4.6%, restructuring at 3.35%, NIMs off 30bps to 4.06%, growth just flat QoQ/YoY. We need to closely monitor if strategy and performance are clearly as per the guidance,” it stated.

Earlier, the RBL Bank management suggested that operating metrics and business fundamentals are on a guided path towards 1% exit RoA by Q4FY22. There is no change in the guidance or business outlook as far as operating performance is concerned, it said. On asset quality, it pointed out that slippages peaked in Q2 and would be improving this quarter and next. As per the guidance, H2FY22 slippages will be 50-60% of H1FY22. Also traction on advance growth is picking up across all segments except MFI. The bank continues to keep improving granularity on both advances and deposits, it added.

Foreign brokerage CLSA said the recent developments at RBL Bank would lead to some uncertainty in the short term, adding that the next six months would be key in validating the management's reiteration.

Emkay Global said in a note that in order to comfort investors, more explanation will be required from management to justify the sudden exit of Vishwavir Ahuja and the RBI's intervention.

Some analysts have expressed concerns about RBL Bank's unsecured business comprising microfinance and credit cards, which together account for 31% of total loans.

On Sunday, Rajeev Ahuja had told reporters that the appointment of RBI’s nominee on RBL Bank’s board had nothing to do with the lender’s financials. The recent developments are not on account of any advances, asset quality or related to the bank’s financial performance, he 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 said.