š¦ RBL Bank Massacre: Is it still prudent to bank your money on this bank?
The share price of RBL Bank has declined by more than 60% over the last year, and the company recently touched a 52-week low. The stock of RBL Bank dropped 22.45% on Monday to close at Rs 87.9. This happened after the bank announced over the weekend that the Reserve Bank of India (RBI) has approved the appointment of R SUBRAMANIAKUMAR as its new managing director (MD) and chief executive officer (CEO) for three years.
ā About the Bank ā
RBL Bank, founded in 1943, is an Indian private sector bank with a growing presence across the country. Corporate & institutional banking, commercial banking, branch & business banking, retail assets, and treasury and financial markets operations are among the services provided by the bank.
It currently serves over 11.2 million customers across 28 Indian states and union territories through a network of 502 branches, 1,418 business correspondent branches, and 414 ATMs.
š¤š Why is the stock price falling?
š Change in Management:
RBL Bank announced on Saturday that R. Subramaniakumar will serve as the new bank president for three years. Mr. Subramaniakumar is a former public sector banker, and such appointments have historically been associated with poor asset quality and governance structure at financial institutions.
The announcement alarmed investors because the regulator had previously taken similar action against YES Bank, Dewan Housing Finance Corporation, and Punjab and Maharashtra Co-operative (PMC) Bank. And as a result of which, the stock price has crashed.
š Change in shareholding pattern:
In the March quarter of 2022, institutional ownership of RBL Bank fell from 51.35% to 50%. During the same time period, the proportion of mutual funds invested in the private lender fell from 13.7% to 11.23%. In addition, the holdings of foreign institutional investors declined by 0.7%.
š Weak Fundamentals:
For the 2022 fiscal year, the bank's gross and net nonperforming assets were 4.4% and 1.3%, respectively, with a provision coverage ratio of 70.4%, which are not very good numbers.
Also, the key fundamental ratios have been deteriorating over the past years. You can see it in the image attached.
š§ Million Dollar Question: Should you invest in the bank?
Fundamental Reasons to Invest:
š Positive Commentary by the Management:
Rajeev Ahuja(Ex CEO)-
First and foremost, we can state unequivocally that there is no leadership crisis. There is no problem with leadership; I am present, and I have stated unequivocally what I believe the bank will do. In addition, I'd like to inform you that this year will be our most profitable year ever.
R. Subramaniakumar(New CEO)-
To add to Rajeev's comments, the perception difficulties are more general. The perception problems are tied to a single occurrence rather than reality. I've worked in the financial industry for both private and public sector organisations. Primarily, the aspect of banking is universal if you look at it closely. Whether controlled by XYZ or ABC, Indian banking is Indian banking.
At the end of the day, what matters is the capacity of the person in charge and the team's ability to collaborate.
š Fundamentals:
ā When compared to other mid-sized banks, the company has relatively moderate NPA figures, 1.34% as of March 31, and a very modest restructured book of 2.6% of gross advances.
ā According to the company's management, they will conclude the year with a 1% ROA, which they expect to increase over the next four quarters, and they are also certain that this will be their best profit year.
ā The company anticipates a 15 to 20% increase in its overall loan portfolio over the next three years.
š Here's what the chart says š
ā The charts are extremely negative, and the stock price has dropped by nearly 30% in the last week. Currently, the stock price is trading at its all-time low.
ā The stock has been in a decline since 2019 and has fallen over 90% from its all-time high of Rs 716.
ā The stock has broken out of the inverted U-pattern on the weekly charts. As a result, the selling pressure has increased even more, and we may expect more in the future.
ā The stock is in uncharted territory right now.
ā It is really difficult to tell where it can take support.
ā As the current market scenario seems bleak, the stock will continue to witness selling pressure.
ā When the market stabilises, one may start accumulating the stock or can wait for some consolidation at these levels.
š” Opinion š”
The markets have overreacted to news of a new CEO appointment, and the stock price reflects this. However, according to management commentary, the company will perform well from here on out, and the results for this quarter are fairly solid. So one can accumulate the stock for long-term gains.
ā ļø Disclaimer:
The information shared above is only for educational purposes. Please consult your financial advisor before making any investment decision.
Do share your views/queries in the comment section.
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