It was a bad start to the week for RBL Bank. The shares of the private lender fell sharply to hit a 52-week low after hitting a lower circuit of 20 per cent on the stock exchanges.
As of 11 am, RBL Bank shares were trading at Rs 139, down 19.42 per cent, on the Bombay Stock Exchange. On the National Stock Exchange (NSE), the shares of the company were down 19.17 per cent.
The sharp fall in the share price has already hit the company’s stock, with many brokers downgrading the value following recent events.
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WHY RBL BANK SHARES FELL TODAY?
Shares of RBL Bank slumped to hit the lower circuit after a surprise move by the Reserve Bank of India (RBI) to appoint its chief general manager Yogesh Dayal as an additional director in RBL Bank for up to two years from December 24, 2021.
“The Reserve Bank of India appointed Mr. Yogesh K Dayal, Chief General Manager, Reserve Bank of India as an additional director on the board of the RBL Bank for a period of two years w.e.f December 24, 2021 till December 23, 2023 or till further orders, whichever is earlier,” the bank said in its press release.
Over the weekend, RBL Bank’s MD and CEO Vishwavir Ahuja went on a sudden leave after the bank’s board approved his request to proceed on medical leave. It may be noted that Ahuja’s term was until June 2022.
The sudden developments have led to uncertainty among investors, leading to a drop in the bank’s share price. Following the RBI’s decision, RBL’s management provided limited clarity regarding the development in a conference call with analysts.
While the management of the bank assured analysts that the bank’s financials remain strong, the sudden RBI action has raised questions and brokerages have turned cautious.
BROKERAGES TURN CAUTIOUS
Brokerage firm CLSA said that the RBI’s appointment of an additional director came as a surprise as the central bank has usually opted for such action in the past when banks were in trouble. CLSA added that the move will lead to near-term uncertainty and reduced its target price on the stock to Rs 200 from Rs 230.
ICCI Securities has also downgraded its rating on the stock to ‘sell’ due to the sudden developments. It also slashed its target price for the stock by nearly 28 per cent to Rs 130.
Meanwhile, Motilal Oswal said the current developments have raised concerns about the bank’s ability to sustain a turnaround in its operating performance.
Emkay Global Financial Services Ltd, said there more clarity is required on the sudden developments in order to comfort investors. “We believe, in order to comfort investors, more explanation will be required from management to justify the sudden exit of Vishwavir Ahuja nearly six months before his term ends in June 2022) and the RBI’s intervention (typically seen in weak banks).
“That said, we draw some comfort from the appointment of Rajeev Ahuja (part of the turnaround journey) as interim MD & CEO, healthy liquidity buffers/capital ratios (Tier I at 15.5 per cent) and management’s strategic intent to change the portfolio mix toward secured assets,” it added.
The brokerage, however, warned that near/medium-term business/asset quality dislocation is inevitable. It also cut earnings estimates for the bank and the stock target price to Rs 165 from Rs 215.
Nirmal Bank Institutional Equities also shared concern over the RBI’s move, given that such a move has only come in the past when a bank’s asset quality faced issues.
“Although there is no change in the bank’s financial and business outlook, the answers with respect to reasons for Vishwavir Ahuja’s immediate leave and appointment of RBI director were answered unsatisfactorily,” said the brokerage.
“The fresh instability at the top management level could be of concern in the near term and would be negative for the stock price,” it added.