Why RBL Bank Share Price is Falling

Indian stock markets have been under acute selling pressure lately. Benchmark indices have been swinging like a pendulum.

The gains made in a month are erased in a single day! Take yesterday's example...the Nifty was just starting to bounce back and then came a massive 400-point fall.

Inflationary concerns, monetary tightening, elevated crude oil prices, geopolitical crisis, lofty valuations, depreciating rupee, and constant FII outflows are the key reasons which are hurting the sentiments.

Amid this backdrop, the stock-specific declines are even steeper.

RBL Bank is one such stock that has fallen close to 60% in the past one year. The stock hit its 52-week low today..

The stock fell nearly 23% yesterday on the NSE.

This RBL Bank saga is bringing back memories of how Yes Bank collapsed. Investors are worried whether RBL Bank might turn out the next Yes Bank.

Here are a few reasons dragging RBL Bank down...

#1 Change in top management

On Saturday, RBL Bank declared that R. Subramaniakumar will take over as the new bank chief for a period of three years.

For those who aren't aware, Mr Subramaniakumar is an ex-PSU banker and historically such appointments at financial institutions have been associated with weak asset quality and governance structure.

The announcement spooked investors considering that the regulator had earlier conducted 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 Dewan Housing Finance Corporation which had turned insolvent.

Last year in December, RBL Bank's then MD & CEO Vishwavir Ahuja went on indefinite leave.

The announcement was made a day after the central bank put one of its chief general managers in the bank as an additional director.

However, neither the regulator nor the private lender had given any indication of the reasons for the change.

Although, a change in the top management was expected by the investors, Mr Subramaniakumar's profile and his appointment at a private bank has surprised the markets causing the steep fall in stock prices.

Change in top level management always has an impact on the stock. In RBL Bank's case, shareholders were not happy...

While the recent development caused the sharp decline in recent days, the scrip has been consolidating for a while now.

Here are some other reasons that dragged the stock...

#2 Huge changes in shareholding pattern

Promoters, domestic institutional investors including mutual funds, and foreign investors (FIIs) are the big movers and shakers of the market.

And when they sell or buy any shares, investors are all ears.

During the March 2022 quarter, institutional holding in RBL Bank dropped from 51.35% to 50%.

Categorically, mutual funds holding in RBL Bank dropped from 13.7% to 11.23% during the same period.

On the other hand, foreign institutional investors decreased their holdings by 0.7%.

The number of FII/FPI investors went down from 193 to 189 during the March 2022 quarter whereas the number of mutual fund schemes decreased from 20 to 18.

March 2022 was the third consecutive quarter where FII/FPI investors declined their stake in the lender.

#3 Weak fundamentals

For the 2022 financial year, the bank's gross and net NPA were 4.4% and 1.3%, with a provision coverage ratio of 70.4%.

Take a look at the key fundamental ratios that have seen a downward trend in the past few years.

	2018-2019	2019-2020	2020-2021
Return on Assets	1.1	0.6	0.5
Return on Equity	11.4	4.7	4.2
Net NPAs	0.7	2.1	2.1
Net Profit (Rs m)	8,578	5,002	5,295
Net Profit Margin	13.6	5.7	6.2

Source: Equitymaster

These figures don't paint a positive outlook for the company's growth and profitability.

Although, in a recent statement, the bank said that it does not foresee any asset quality challenges going ahead and has built adequate provisions to tide against bad loans.

Clarification by the lender

Following this rout, RBL Bank today said that rumours linking the appointment of R Subramaniakumar with asset quality challenges for the bank in the near future are unfounded and baseless.

The lender added that it does not foresee any asset quality challenges going ahead and has built adequate provisions to tide against bad loans.

The company has come out with a notification to sooth investors' nerves.

But in the end, it will be the company's performance that will matter and how it manages to improve the asset quality.

How RBL Bank shares have performed recently

In 2022 so far, RBL Bank share price is down over 30%.

RBL Bank has a 52-week high quote of Rs 226.4 touched on 8 July last year while the stock touched its 52-week low of Rs 86.4 today.

As of March 2022, FIIs hold 28.2% stake in the company. To know more, check out RBL Bank's latest shareholding pattern.

About RBL Bank

Incorporated in 1943, RBL Bank a private sector bank in India with an expanding presence across the country.

The bank offers services under five business verticals namely: corporate & institutional banking, commercial banking, branch & business banking, retail assets, and treasury and financial markets operations.

It currently services over 11.2 m customers through a network of 502 branches, 1,418 business correspondent branches, and 414 ATMs spread across 28 Indian states and union territories.

To know more about the company, you can check out RBL Bank's company fact sheet and its quarterly results.

You can also compare RBL Bank with its peers.

RBL Bank vs Federal Bank

RBL Bank vs Bandhan Bank

RBL Bank vs City Union Bank

To know more about the sector, you can have a look at the banking sector report on our website.

Happy Investing!

 

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...