Can RBL Bank come out of financial mess?

Imbalanced Loan Portfolio

- Credit card lending, which is unsecured credit, gone as high as 41% of its loanbook

- Whereas fully secure lending- retail home loans and agri loans- accounts for 10%

- Gross NPAs surged from Rs357 cr in 2017 to over Rs2,600 cr now

- However, bank maintains comfortable 16.33% CAR, Provision Coverage Ratio of 76.6%

- LCR is 153% as against regulatory requirement of 100%

- Its MD & CEO Vishwavir Ahuja stepped down

- RBI appointed its CGM Yogesh Dayal as RBL's addl director

There has been speculation relating to the RBL Bank in certain quarters. The bank is well capitalized and the financial position of the bank remains satisfactory, said RBI

Mumbai: Even as RBL Bank has appointed a senior Reserve Bank of India (RBI) official on its board as an additional director, after its MD & CEO, Vishwavir Ahuja, who has served the bank in this capacity for more than a decade and was supposed to serve until June 2022, went on a medical leave, the cloud of controversy doesn't seem to come under control.

The bank has informed the stock exchange that it has appointed Rajeev Ahuja, current Executive Director, as the interim MD and CEO with immediate effect. Though there is as such no portending danger on the survival of bank, still some of the steps taken by the bank were beyond the banking norms. Hence, it's falling under the radar of the RBI.

For example, the bank's credit card lending, which is supposed to be unsecured credit, had gone as high as 41 per cent of its loanbook, whereas the share of fully secure lending like retail home loan and agri loans each contribute to merely five per cent of the loan book.

Similarly, the net NPA of the bank has increased by 106 basis points in the past six months.

According to Rajeev Ahuja, "bank, current management team, transition, strategy, and business have full support of RBI. Events are not a reflection of our performance,"

Performance and trajectory are much improved in Q2 and will continue to get better in Q3 and Q4, he added.

On the RBI's instance, the bank has appointed chief general manager of RBI, Yogesh Dayal as its additional director.

In a statement on Monday, RBI said that there has been speculation relating to the RBL Bank in certain quarters which appears to be arising from recent events surrounding the bank.

The Reserve Bank stated that the bank is well-capitalised and the financial position of the bank remains satisfactory. As per half yearly audited results as on September 30, the bank has maintained a comfortable Capital Adequacy Ratio of 16.33 per cent and Provision Coverage Ratio of 76.6 per cent. The Liquidity Coverage Ratio (LCR) of the bank is 153 per cent as on December 24 as against regulatory requirement of 100 per cent.

As such, there is no need for depositors and other stakeholders to react to the speculative reports. The bank's financial health remains stable, it added.

Meanwhile, AIBEA underlined the need for taking preventive steps to save RBL Bank (Ratnakar Bank).

"We are worried and concerned about the developments that are taking place in the affairs of RBL Bank, the Kolhapur-based private Bank," said AIBEA general secretary CH Venkatachalam.

While the Board recommended Ahuja's continuation, it is learnt that RBI has agreed only for a short term up to 2022. The sequence of events leading to the sudden exit of Vishwavir Ahuja along with the induction of Dayal from RBI on the Board as additional member indicates that

everything is not well with the bank.

It is observed that the total advances of the bank have doubled during the last few years. From about Rs 29,000 crore of advances in 2017, it has crossed Rs 58,000 at present. The bad loans and Gross Non-Performing Assets (gross NPAs) of the bank have been swelling in the recent years. In 2017, the Gross NPAs were only Rs357 crore and today they are more than Rs 2,600 crore.

While the operating profit of the bank has been increasing in the recent years, the bulk of these profits have been adjusted towards provision for bad loans and as result, the net profit has remained meagre.

There are also reports that the bank has been overindulging in retail credit, micro-financing and credit cards and consequently has burnt its finger resulting in weakening of its financials.

"In the background of the problems encountered by private banks like Yes Bank and Lakshmi Vilas Bank last year, we urge upon you (RBI) to immediately intervene in the matter in the interest of the depositors of this private sector bank and consider necessary steps including merger of this bank with a public sector bank," Venkatachalam said.

In a statement, RBL Bank has said that business momentum and financial performance have been improving since second quarter of the current fiscal as it has recovered from the effects of the pandemic.

In its analysis, Emkay says, "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 (June 2022) and the RBI's intervention (typically seen in weak banks like Ujjivan, Dhanlaxmi, LVB, J&K Bank). We believe the story will unfold in due course."

Bank, current management team, transition, strategy, and business have full support of RBI. Events are not a reflection of our performance

- Rajeev Ahuja, Interim MD and CEO, RBL Bank