The stock price of RBL Bank hit a record low of Rs 87.60 as it tumbled nearly 23 per cent on the BSE in Monday’s intra-day trade after the Reserve Bank of India (RBI) approved R Subramaniakumar’s appointment as the managing director & chief executive officer (MD & CEO) of the private sector lender. “…A meeting of the Board of Directors will be convened to approve the appointment of Mr. R Subramaniakumar as an Additional Director and as the Managing Director & CEO of the Bank and the approval of the shareholders shall be obtained thereafter,” the Bank said in its stock exchange filing on Saturday.
Previously, Subramaniakumar was the former managing director and chief executive director of the state-run Indian Overseas Bank. He was also appointed as the administrator of Dewan Housing Finance Co Ltd after the mortgage financier’s board was superseded. “Given his profile, he comes across as a troubleshooter with decent success at IOB/DHFL. However, his selection as MD & CEO of a private bank, despite interim management’s assurance on asset quality and plans to reorient the bank on the path of growth, is a little surprising,” said analysts at brokerage Emkay in a note.
Last year in December, RBL‘s then MD & CEO Vishwavir Ahuja went on indefinite leave. Executive director Rajeev Ahuja was appointed as the interim Managing Director & Chief Executive Officer. Ahuja’s departure had come after the RBI appointed one of RBL’s chief general managers, Yogesh Dayal, on the lender’s board as an additional director.
What Investors Should Know?
According to analysts at Kotak Institutional Equities, RBL Bank has addressed one concern, however, issues on the strategy of the bank given its reliance on high-yielding product segments, employee retention, and recovery in return ratios and growth remain unclear. “We need to have clarity (1) Construct of the loan mix. The bank’s key profit pool comes from the credit card and MFI business. Any changes to this model would hurt the near-term prospects on growth and profitability. (2) Employee retention/hiring strategy. ESOPs usually tend to play a critical role in retaining talent and RBL Bank’s price performance since listing has not been impressive. (3) Normalization of the RoE journey could be longer. The path to RoE needs more clarity and there could be a lot of changes that could happen in the next few years and the bank may need more time to get to a higher RoE from current levels,” they said in a report dated June 13.
RBL Bank: Stock Price History
In the past six months, the market price of the bank has more-than-halved (down 52 per cent) against a 9 per cent decline in the S&P BSE Sensex. RBL Bank has faced multiple issues in the last couple of years on the growth front starting from the corporate book blow-up till the recent Covid impact on its microfinance institutions (MFI) and cards business.
What Should Investors Do Now?
“Amid the uncertainty, we downgrade the stock to Hold from Buy, with a revised target price of Rs 110 ( Rs 140 earlier). We expect the stock to remain under pressure in the near term, as investors would like to wait for the new management’s business strategy, including near-term growth/asset-quality movement,” the note stated.
Another leading brokerage, CLSA has downgraded RBL Bank stock to outperform from buy, with a target price of Rs 130, hinting at a 15 per cent gain from its previous close of Rs 114.45. “Leadership flux and liability are the key headwinds but the lender has a manageable asset quality. RBI has approved R Subramaniakumar as the new MD & CEO of the lender, despite the several questions,” it said.
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