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Home / Industry / Banking /  Why the developments at RBL Bank remain a mystery

On Saturday, the Reserve Bank of India (RBI) appointed an additional director on the board of private lender RBL Bank. Chief executive Vishwavir Ahuja also went on immediate leave. Mint takes a look at what happened at the lender that led to a regulatory intervention.

What happened at RBL Bank?

The bank and the regulator have offered little details as to what happened on Saturday and instead said the events are not related to the lender’s financial position. RBL Bank’s interim chief executive Rajeev Ahuja pointed out on Sunday that since an internal candidate has been unanimously elevated to the new role, including by the new RBI nominee, it should mean there are no concerns about the bank. On Monday, the banking regulator said in a statement that it appoints additional directors when it is feels that the board needs closer support in regulatory and supervisory matters.

How did RBL perform in the past year?

Like its peers, covid-19 dealt a blow to the bank’s asset quality, which deteriorated as borrowers were not able to repay on time. Bad loans as a percentage of total advances rose to 5.4% as on 30 September, up from 4.34% as on 31 March. However, following a provisioning exercise, its net NPAs were at 2.14% in the second quarter. Rajeev Ahuja said on Sunday that the bank has absorbed all challenges on the asset quality front and while addition of bad loans had peaked in the three months to September, the next three months should be better. On the capital front too, the bank appears to be adequately buffered.

Covid impact
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Covid impact

How often has RBI intervened in bank boards?

It is not every day that RBI appoints an executive on the board of a regulated entity and so analysts are quite surprised. They are keeping a close watch on the bank’s liquidity and possible exits of senior management. Some of the past instances of such appointments include those at Yes Bank, Ujjivan Small Finance Bank, J&K Bank and Lakshmi Vilas Bank.

What has the reaction from analysts been?

Analysts said they need clarity on what happened at the bank, and the management’s commentary on Sunday left several questions unanswered. Analysts said no satisfactory reasons for RBI’s actions were provided by the management. They sought to know why bank chief executive Vishwavir Ahuja went on a sudden medical leave six months before his tenure came to an end. RBI’s statement, however, indicated that the trigger for appointing an additional director had nothing to do with the bank’s financials.

What does this mean for RBL’s investors?

Shares of RBL Bank slipped 23% in intraday trade on the BSE but recovered to end the day at 140.9, down 18.32%. Data show that retail shareholders own 17.49% in the bank. While foreign institutional investors, with a larger stake, have more to lose from this volatility, small investors have significantly lower wherewithal to absorb such fluctuations. While the lack of disclosures is surprising, the only way to stop any speculation is for both the lender and RBI to set the record straight.

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