Brokerage firm Emkay Global Financial Services has maintained a 'hold' rating on RBL Bank but reduced its target price by 23 percent. The move comes close on the heels of developments related to sudden management changes. The RBL Bank stock tanked 20 percent, with only sellers in the stock, as investor sentiment turned bearish.
The Reserve Bank of India appointed its Chief General Manager Yogesh K Dayal as an additional director on the RBL Bank board for two years. Meanwhile, Vishawvir has gone on medical leave. Meanwhile, RBL Bank's Managing Director and Chief Executive Officer Vishwavir Ahuja has proceeded on leave with immediate effect a day after RBI's move.
The private sector lender appointed Rajeev Ahuja as interim MD and CEO with immediate effect. The brokerage reduced its target price for RBL Bank to Rs 165 from Rs 215.
Emkay lowered its target price for RBL Bank to Rs 165 from Rs 215 citing the lender's lower RoE (8-10 percent over FY23-24E vs 9-11 percent earlier) and near-term management uncertainty.
Emkay said the RBL Bank management did not provide satisfactory reasons for the appointment of the RBI official on its board and the sudden management rejig.
On Sunday, Rajeev sought to allay concerns around the lender's health, stressing that the events over the weekend are not linked to quality of advances or asset quality. He said the bank will stick to all the targets spelled out at the earning call in September, but conceded that microfinance lending is an area that requires more attention.
"We believe that the RBI's long-term discomfort with the unsecured heavy asset-side construct creating asset quality risks as seen during COVID and poor compliance with its directives (about risk management/governance/succession) could have possibly led to its swift intervention, apart from ensuring a smooth management transition and comforting the stakeholders," Emkay said.
The RBL Bank management emphasised that the change in the top management is not due to any asset quality issues or divergence, and that recovery trends are largely in line with expectations, barring MFI, the brokerage said. It also said the management has reiterated its guidance to bring down net NPAs to below two percent from the current 2.1 percent by improving the provision coverage ratio (PCR) and achieving an exit RoA of one percent by Q4.
"The medium to long-term strategy to build the retail deposit base and diversify the asset book toward a more secured portfolio, including mortgages, will continue and possibly be accelerated," Emkay added.
"RBL carries a liquidity buffer of Rs 120-130 billion to deal with the initial deposit run-down scare amid the turn of events, which could be limited. The management believes that it has built a reasonably strong retail deposit franchise in past three years after the deposit scare in the March 2019 Yes Bank saga, and is now battle-tested to deal with any eventuality," the brokerage added.
Emkay believes that in order to comfort investors, more explanation will be required from the RBL Bank management to justify the sudden exit of Vishwavir Ahuja nearly six months before the end of his term and the RBI's intervention.
"We believe the story will unfold in due course. That said, we draw some comfort from the appointment of Rajeev Ahuja, healthy liquidity buffers/capital ratios (Tier I at 15.5 percent) and the management's strategic intent to change the portfolio mix toward secured assets. However, the near-/medium-term business/asset quality dislocation is inevitable," it added.
Emkay also cut its earnings estimates for RBL Bank for F22, FY23 and FY24 by 176 percent, 13 percent and 12 percent respectively. It also cut its price to adjusted book value (ABV) multiple to 0.7 times the December 2023E from 0.9 times.
The brokerage said it would keep an eye out on any further development at RBL Bank.
(Edited by : Ajay Vaishnav)