RBI action against RBL Bank What we know so far

Similar conduct from the controller, on a Christmas Day no less, typically do n’t be without a strong reason

. RBL Bank, the 78- time-old Mumbai-headquartered lender, had an surprisingly excited Christmas Day, albeit minus the fests. Two crucial developments came to public light during the day.

First, the Reserve Bank of India (RBI) appointed Yogesh Dayal, the principal general director in- charge of department of communication, as an fresh director on the board of the bank. Second, latterly in the day, the bank communicated to the exchanges that RBL Bank’s long- term MD and CEO Vishwavir Ahuja, a stager banker, has gone on leave with immediate effect.

Latterly, Administrative Director Rajeev Ahuja was named the interim MD and CEO of the bank subject to nonsupervisory blessings.

What could have led to the two conduct? Both the bank and the controller did n’t give any reason so far. But, one need to read between the lines, for an answer.

While we do n’t have material information as to the reason, experience in other banks show this series of changes ca n’t be a bare coexistence. The controller generally puts its folks on the board when it feels that there’s a need for near scrutiny either in terms of fiscal performance or governance issues or both.

To be sure, we do n’t know what happed in RBL Bank yet. But assiduity stagers point out two likely scripts why RBI could have acted in this manner and the CEO was transferred or went on leave.

“ Either the controller must have felt that the bank wasn’t conforming to exposures as per the regulation or there can be an issue of particular integrity — commodity being done wrong constantly. Fact is that we do n’t know which is what at this point,” said a stager banker, refusing to be named.

Remember, before this time, RBL had sought blessing from the Reserve Bank of India (RBI) to appoint Ahuja for another three- time term at the bank’s helm. The controller, still, had allowed RBL to extend his term by one time starting June 30, 2021.

Before RBL, Ahuja was the MD and CEO of Bank of America in India from 2001 to 2009. This shows that the RBI has been conservative.

A top functionary of a standing agency said there will be a review of the bank’s standing in the light of the rearmost developments. “ We were stable in terms of standing and outlook. But now we will do a review,” said the functionary, who too declined to be linked.

Is asset quality a concern? “ Possible,” said the banker quoted over. RBL Bank’s gains were impacted in the alternate quarter significantly due to advanced vittles. Both the grossnon-performing means (NPA) and net NPA rate slipped in Q2.

The grossnon-performing means (Gross NPA), netnon-performing means (Net NPA) rates rose by 41bps/ 13bps (one base point is one hundredth of a chance point) on- quarter to5.4 per cent/2.14 per cent. In Q2 of FY21, the Gross NPA and Net NPAs stood at3.34 per cent and1.38 per cent.

“ But, simply because the NPA is high, the RBI is doubtful to get advised in such a manner,” the banker argued.

RBL Bank may be paying the price for the original phase of aggressive growth, said a elderly banking critic on condition of obscurity. “ The RBI typically takes a gradational approach in similar cases so as not to horrify retail investors. I anticipate further developments ahead,” the critic said, asking not to be named.

In the history, there have been cases where the RBI has put its people on the banks’ boards. Some of these cases include Dhanlaxmi Bank, quondam Lakshmi Vilas Bank, and YES Bank. The common thread in all these cases was that there were governance enterprises or worried finances.

To calm investors, RBL Bank has informed the exchanges that business is as usual at the bank. RBL also told the stock exchanges that its business and fiscal line continues to be on perfecting trend.

“ The financials of the bank remain robust with a healthy capital acceptability of16.3 percent, high situations of liquidity as reflected through liquidity content rate of 155 percent, stable net NPA of2.14 percent, credit deposit rate of74.1 percent and influence rate of 10 percent, for the quarter ended September 30, 2021,” the bank said.

Yet, trade unions have sounded caution. “ We’re upset and concerned about the developments that are taking place in the affairs of RBL Bank Ltd, the Kolhapur- grounded private Bank,” the All India Bank Workers Association (AIBEA) said in a letter to Finance Minister Nirmala Sitharaman.

“ The sequence of events leading to the unforeseen exit ofMr. Vishwavir Ahuja along with the induction of Dayal from the RBI on the Board as fresh member indicates that everything isn’t ok with the bank,” the letter said.

It’s too early to conclude what might have started the RBI action and the CEO suddenly going on leave. One needs to stay and watch for further clarity. But it’s veritably likely that one will see further developments in the bank in the coming days.