Indian stock markets are down and under heavy selling pressure lately. Benchmarks swing like a pendulum.
Earnings made in a month are erased in a single day! Take yesterday as an example… the Nifty was just starting to rebound, then came a massive 400 point drop.
Inflationary concerns, monetary tightening, high crude oil prices, geopolitical crisis, high valuations, depreciation of the rupee and constant FII outflows are the main reasons that are hurting sentiment.
Against this backdrop, the stock-specific declines are even more pronounced.
RBL Bank is one such stock that has fallen nearly 60% in the past year. The stock hit its lowest level in 52 weeks yesterday.
The stock fell nearly 23% earlier this week on the NSE.
This RBL Bank saga brings back memories of the collapse of Yes Bank. Investors are worried about whether RBL Bank could become the next Yes Bank.
Here are some reasons that are dragging RBL Bank down…
#1 Change of top management
On Saturday, RBL Bank said R. Subramaniakumar would take over as the new bank chief for a period of three years.
For those unaware, Mr. Subramaniakumar is a former PSU banker and historically such appointments in financial institutions have been associated with poor asset quality and governance structure.
The announcement spooked investors given that the regulator had previously taken similar action in the case of YES Bank, Dewan Housing Finance Corporation and Punjab and Maharashtra Co-operative (PMC) Bank.
Subramaniakumar himself was the administrator of the insolvent Dewan Housing Finance Corporation.
Last year, in December, Vishwavir Ahuja, then Managing Director and CEO of RBL Bank, went on indefinite leave.
The announcement came a day after the central bank appointed one of its chief managing directors at the bank as an additional director.
However, neither the regulator nor the private lender had given any indication of the reasons for the change.
While a change in top management was expected by investors, Mr. Subramaniakumar’s profile and his appointment to a private bank surprised the markets, causing stock prices to fall sharply.
A change in direction always has an impact on the stock. In the case of RBL Bank, shareholders were not happy…
While recent developments have caused the sharp decline over the past few days, the scrip has been consolidating for some time now.
Here are some other reasons that caused the stock to slide…
#2Huge changes in the ownership model
Developers, domestic institutional investors including mutual funds, and foreign investors (FIIs) are the big movers and shakers in the market.
And when selling or buying stocks, investors are all ears.
During the March 2022 quarter, the institutional stake in RBL Bank decreased from 51.35% to 50%.
Categorically, mutual fund ownership in the private lender fell from 13.7% to 11.23% over the same period.
In contrast, foreign institutional investors reduced their holdings by 0.7%.
The number of FII/REIT investors increased from 193 to 189 in the March 2022 quarter while the number of mutual funds increased from 20 to 18.
March 2022 was the third consecutive quarter that FII/REIT investors declined their stake in the lender.
#3 Weak Fundamentals
For the 2022 financial year, the bank’s gross and net NPAs are 4.4% and 1.3%, with a provision coverage ratio of 70.4%.
Take a look at the major fundamental ratios that have trended lower over the past few years.
These numbers do not paint a positive outlook for the company’s growth and profitability.
Although, in a recent statement, the bank said it does not foresee any asset quality issues in the future and has made adequate provisions to deal with bad debts.
Clarification by the lender
Following the rout, RBL Bank said today that rumors linking the appointment of R Subramaniakumar to asset quality issues for the bank in the near future are unfounded and baseless.
The lender added that it does not foresee any asset quality issues in the future and has made adequate provisions to deal with bad debts.
The company issued a notification to ease investors’ nerves.
But in the end, it will be the company’s performance that will matter and how well it manages to improve asset quality.
How RBL Bank shares have performed recently
In 2022 so far, RBL Bank’s share price is down more than 30%.
RBL Bank has a 52-week high of Rs 226.4 hit on July 8 last year, while the stock touched its 52-week low of Rs 86.4 today.
About RBL Bank
Incorporated in 1943, RBL Bank is a private sector bank in India with a growing presence across the country.
The bank offers services in five verticals, namely: Corporate and Institutional Banking, Commercial Banking, Branch and Corporate Banking, Retail Assets, and Treasury and Capital Markets Operations.
It currently serves over 11.2 million customers through a network of 502 branches, 1,418 business correspondent branches and 414 ATMs spread across 28 Indian states and union territories.
To learn more about the company, you can view RBL Bank’s corporate fact sheet.
You can also compare RBL Bank with its peers.
RBL Bank vs Federal Bank
Disclaimer: This article is for information only. This is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
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