Home / Companies / News /  Why RBL Bank shares are going down after the CEO appointment

MUMBAI : Shares of RBL bank fell more than 22% on Monday after the Reserve Bank of India (RBI) approved the appointment of R. Subramaniakumar as its managing director (MD) and chief executive officer (CEO).

Subramaniakumar’s appointment follows the unexpected resignation of former MD and CEO Vishwavir Ahuja.

Most analysts downgraded the stock following the appointment of Kumar, a former public sector banker who was involved in reviving Indian Overseas Bank and Dewan Housing Finance Corp. Ltd (DHFL), which had poor asset quality issues.

“He is an ex-PSU banker and, historically, such appointments at financial institutions have been associated with weak asset quality and/or governance structures. Hence, the CEO appointment raises questions, including the continuity of the existing top leadership at the bank. While we believe asset quality does not seem to be a problem, this situation could have a potential weakening impact on liabilities and, hence, impact the bank’s performance and growth trajectory adversely," said CLSA, which downgraded the stock to ‘outperform’ from ‘buy’.

In the interim, the central bank had appointed a nominee director on the private sector lender’s board. The board had recommended two names, which according to media reports included the CEO of Standard Chartered Bank Zarin Daruwala.

“The market was expecting an appointment that would take the bank to the next level of development. However, the final appointment seems to be an RBI directive meant to steer the bank in a pre-defined direction. Subramaniakumar’s former credentials of being the DHFL liquidator has not helped matters much," according to the CEO of a brokerage firm, who spoke on condition of anonymity.

Analysts expect the stock to remain under pressure in the near term, depending on the new management’s business strategy, employee retention measures and recovery in return ratios.

“We believe that his selection by the RBL and relatively swift approval by the central bank indicate possible RBI blessing throughout the process to bring stability and credibility to the bank. We believe the new MD’s priority would be to improve portfolio quality, strengthen compliance and risk management architecture, and stabilize the bank. That said, there may be a potential risk of some asset-quality clean-up (if required) and mid-level management attrition as well," said Emkay Global, which downgraded the stock to ’hold’ from ‘buy’ with the target price reduced from 140 to 110.

Meanwhile, Kumar swung into action on Monday, meeting with 30-40 senior managers, trying to assuage concerns.

Kumar, whose appointment was approved over the weekend, wrote an email to RBL Bank employees, clarifying that the main focus will be on growth.

“The bank with its strong financials and well capitalized balance sheet, provides everyone a good opportunity to grow," he said in the email.

“Having scripted RBL 1.0 successfully, let us all come together to script RBL 2.0, keeping the bank’s high standards of service delivery." Mint has seen a copy of the email.

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