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MUMBAI : A 300-crore loan that was written off within seven months of being sanctioned has emerged as the key reason for the banking regulator’s sudden intervention in private lender RBL Bank, two people directly aware of the development said.

RBL Bank made the loan to a company as part of a consortium of lenders in 2018, and RBI has been seeking details about the bank’s loan portfolio from risk department for the past few months, the people said, requesting anonymity. Details about the borrower could not be immediately ascertained.

“RBI had not explicitly red-flagged any particular transaction, but sensing that things were amiss, some board members of RBL Bank decided to meet deputy governor Rajeshwar Rao on 29 November to seek clarity, but they did not get any inkling of what RBI was planning," one of the two people said.

Alarm bells
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Alarm bells

Things, however, came to a head when RBI sent a letter on 24 December stating that it had appointed its chief general manager Yogesh Dayal on the bank’s board.

In the 25 December board meeting, Dayal said the continuation of chief executive Vishwavir Ahuja has become untenable, and RBI would have no choice but to supersede the board, as it did in the case of Yes Bank and Lakshmi Vilas Bank, if Ahuja did not step down immediately. Notably, in June, RBI had approved the reappointment of Ahuja for a year instead of the three-year term sought by the bank. According to regulations, RBI can supersede a bank’s board under Section 36 ACA of the Banking Regulation Act, 1949, but only after consultations with the Centre. “It can do so if RBI is satisfied that it will be in public interest or for preventing affairs of any bank being conducted in a manner detrimental to the interest of depositors, among others," said Avinash Khard, a partner at law firm DSK Legal.

Emails sent to RBL Bank chairman Prakash Chandra, and RBI’s Dayal remained unanswered. Vishwavir Ahuja did not respond to calls or texts seeking comment. An RBL Bank spokesperson said, “as a matter of policy, we don’t offer comments on speculations and also on any privileged communication."

Dayal told the board that Ahuja had to leave by the end of Saturday. “When he was asked if it could wait till Monday, Dayal said it had to be done immediately. The board had little choice but to let him go on medical grounds," said one of the two people. RBL Bank shares fell as much as 23% in intraday trading on Monday after the developments over the weekend left investors baffled. On Saturday evening, in two separate statements, the bank said RBI had appointed Dayal as an additional director and that chief executive Ahuja would go on immediate leave.

Once the stock reacted on Monday, RBI assuaged concerns of depositors and shareholders, saying the private lender’s financial health remains stable, and there is no reason for depositors and other stakeholders to react to speculative reports. “Since the reason for RBI coming on board cannot be made public at this stage, it was decided that the bank management would talk about the bank’s performance in numbers. The idea was to tell investors that the bank is financially stable and, fortunately, RBI backed that in its press release on Monday," the second person said.

RBL Bank did face asset quality issues, but its interim CEO Rajeev Ahuja said on Sunday that while bad loans had peaked in the quarter to September, the next three months should be better. Bad loans as a percentage of total advances rose to 5.4% as of 30 September, up from 4.34% as of 31 March.

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