RBL Bank and RBI’s Christmas Bombshell Needs Clarity
Investors, depositors and employees of RBL Bank, and those whose job it is to track the banking world, had their Christmas celebrations rudely disrupted with a bombshell communication to stock exchanges from its board of directors. It said that Vishwavir Ahuja, managing director (MD) and chief executive officer (CEO ) had proceeded on leave with ‘immediate effect’ and the board had given interim charge to executive director Rajiv Ahuja. Further, the Reserve Bank of India (RBI) had appointed its chief general manager, Yogesh K Dayal, as additional director at RBL Bank for two years. 
 
Things have moved rapidly since this announcement. On Sunday evening, Rajiv Ahuja and some board members addressed an analysts’ conference in an effort to calm investors and, possibly, stem a sharp correction in the stock price on Monday morning and reassure depositors.
 
The investor conference, despite Rajiv Ahuja’s best efforts, was unconvincing. We now learn that Vishwavir Ahuja has gone on 'medical leave'. Yet, in answer to another question, Rajiv Ahuja indicated that 25th December was the former MD’s last day in that role and he did not give a clear answer on whether he would continue to remain a director. This suggests  Vishwavir Ahuja is making a clean break from the Bank; but the Bank’s website continues to show him as a director, even while it has been updated to include Yogesh K Dayal, the central banker, whose appointment coincided with Vishwavir Ahuja’s exit. 
 
Last year, RBI had rejected the board’s request for another three-year term for Vishwavir Ahuja, agreeing only to a one-year extension that would have ended on 30 June 2022. What caused the central bank to cut this short by hastening his exit six months ahead of time by appointing a director that, too, on a significant holiday weekend? 
 
In the recent past, the regulator has appointed directors at Yes Bank, Dhanlaxmi Bank and Ujjivan Small Finance Bank signalling the need for a closer attention to its working. RBL’s con-call on Sunday evening had no convincing explanation for Mr Dayal’s appointment, although such a move invariably signals financial trouble. Its press release on 26th December is emphatic that the sweeping “developments are not on account of any concern on advances, asset quality and deposits level of the Bank. We want to allay any concerns any of you may have in this regard. The Bank has the full support of the RBI.” It put out some numbers to show that its ‘financial performance trajectory’ has been improving.
 
Even as people were assessing the situation, CNBCTV18 pulled another rabbit out of a hat. Citing ‘RBI sources’, it said, billionaire investors Rakesh Jhunjhunwala and RK Damani, the founder of D-Mart, had approached RBI to buy a 10% stake in the Bank and that the central bank was examining the request. Time will tell whether this astounding ‘request’, given its timing, was just a ploy to counter any price impact and reassure depositors. The two investors were reported to be keen on a similar stake in Yes Bank, but nothing materialised. The question here is: Does RBL need capital or an immediate bailout? The RBL’s press release puts its capital adequacy at 16.3% and Rajiv Ahuja, in his con-call, said that the Bank does not require capital immediately. 
 
RBI Is Answerable
My sources at RBI also insist that the Bank does not need a bailout. If so, the banking regulator definitely owes people an explanation for its actions. The banking regulator has the power to ratify top appointments at banks, but it also has a duty to ensure smooth and seamless transition in a business acutely sensitive to public opinion. RBL already has a retired central banker, Chandan Sinha, on its board. He has also been its nominee on several bank boards and RBI committees. The regulator had the benign option of engaging with Mr Sinha; instead, it chose to send a clear negative signal by appointing its chief general manager that, too, on Christmas day. 
 
If the refusal to grant Vishwavir Ahuja is merely a policy decision because he has been around for 11 years, RBI needs to demonstrate that such a policy is uniformly applied and based on clear evaluation metrics.
 
Vishwavir Ahuja had a stellar record, until recently. After a long stint at Bank of America that he quit as MD, he took charge of the tiny, Kolhapur-based Ratnakar Bank and grew its balance sheet 40 times over the past 11 years, with smart re-branding and public listing. RBL now has a geographical reach across 28 states with 445 branches and advances crossing Rs58,000 crore and had been growing at 30% in the past five years. Its rapid growth suddenly hit the rocks after an aggressive change in focus to unsecured retail lending, including microfinance and credit cards. Non-performing assets (NPAs), which accelerated in the past three years, were further exacerbated after the COVID-19 pandemic leading to a net loss of Rs459 crore in the June quarter of FY21-22 (against a net profit of Rs141 crore in the year-ago period). But profits had already been declining since the second half of FY18-19 after the focus shifted to retail banking.
 
In a letter to the finance minister, the All India Bank Employees Association (AIBEA) points out that RBL’s NPAs have soared in the past three years from Rs357 crore to Rs2,600 crore and the bulk of its operating profit rise has been used to provide for bad loans. Total provisions in the June FY21- 22 quarter rose to Rs1,426 crore. RBL confirms that it has issues in retail credit, microfinancing and credit cards but claims that it has ‘absorbed the challenges’ to asset quality after the pandemic and its slippages as well as NPAs  ‘will be’ improving in the current quarter. 
 
While COVID impacted all businesses and banks, RBL took a hit due to its focus on microfinance, rural customers and small businesses, as the former MD had admitted previously. RBL’s exposure to large corporate groups has also been a worry. Earlier in December, the Bank decided to sell its loans to 25 corporate groups including the beleaguered Future group.
 
All this has already impacted its stock price. In fact, from the heights it had reached in May 2019, RBL’s stock price had already halved by the time COVID-19 hit. On 24 December, before the big upheaval, RBL dropped 2.67% to Rs173.20, marking a decline of over 25% year-to-date when the stock market has gone up 20%, despite the recent turmoil.
 
Until November 2020, Vishwavir Ahuja had successfully raised funds twice, exuded confidence about achieving double-digit growth in FY21-22 and seemed sanguine about corporate loans, despite problems with ‘four or five large corporate accounts’. But it is clear that the Bank needs a quick course-correction and to reduce cost of funds, exposure to microfinance and credit cards and bring down expenses. If the present board and managment had bought into Vishwavir Ahuja’s focus on rapid growth and a shift to retail banking, will the ‘continuity’ factor touted by the Bank in asking Rajiv Ahuja to take over as interim CEO really boost investor confidence?
 
We will know more in the coming days; but, as of now, the crash in its stock prices shows that the market is unconvinced. This is partly due to the regulator’s own record of consistently failing to initiate timely action against non-banking finance companies (NBFCs) as well as banks. If the regulator wants us to believe that this time it is different, it needs to issue a detailed statement rather than resort to confusing media leaks. 
 

Comments
dayaka58
9 months ago
In Indian banking it is Rogue banking culture nurtured promoted and protected by all who matter with Authority in banking since 2000 onwards is responsible for all the problems and also being supported by manipulative media.
sathya2011
9 months ago
I have the feeling that privatisation of banks is not the only solution and it is evidenced by lot of failures in the segment. The scale of operations need to be expanded whether in public sector or in private sector to enable the bank managements to have leverage in operations as defaults in loans cannot be completely avoided. I see this government speaking privatisation on one side but practising policing them on the other without transperancy under the guise of protecting small depositors and is it the true intent.
patakotavenkat5
9 months ago
Excellent article covering all the follies of RBI. If RBI is so good we would not be having huge NPAs in the system. Our banking system grew exponentially during 2003-2008 and one year it grew even 35%. Projects are funded with high debt equity ratios and favours showered on promoters. All these account started becoming NPAs by 2012 and Dr Raghu Ram Rajan's AQR opened pandora box which resulted in Gross NPAs reaching Rs 10 Trillions. RBI is squarely failed in its basic job despite auditing of big accounts and reviewing them with big teams. Our GDP grew and so as exports during 2003-08 but impact of 2008 global crisis hit India later as bankers tried to hide NPAs. Overall i do not see RBI learning any lesson despite yes bank fiasco as several investors lost billions of rupees
sowrirajam.padmanabhan
9 months ago
Let the latest RBI report may be released if RBI statements are real and correct to the public as well
Investors. Further who are four or five corporate s? Perhaps they may be linked with ruling compulsions behind the sudden move on a holiday. Purpose not clear to general public. What happened LVB shareholders plight? This story endlessly confirmed RBI's inappropriate actions
Unconvincing.
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